I know that some people who read this blog and do not much care about the world beyond the F1 paddock think that I have it in for Vijay Mallya. This is not the case at all. The problem is that Mallya is the owner of one of the Formula 1 teams and his money is needed to keep that operation healthy. If the money stops coming in, then the future of the team becomes clouded. It is always possible that another owner will be found and the team will roll onwards, but the sport needs to be aware what is going on behind the scenes. This sort of stuff is not going to be put out in press releases by the team, but that does not mean it is not happening. The latest reports from the business community in India suggest that Mallya is now considering the sale of a portion of his 40.57% stake in United Breweries Holdings (UBH), in order to try to reduce the problems facing Kingfisher Airlines.
UBH is the parent company of United Breweries Ltd, United Spirits Ltd, Mangalore Chemicals & Fertilizers Ltd, UB Engineering Ltd and Kingfisher. The rumoured sale may be deemed necessary because UBH has guaranteed a considerable amount of Kingfisher Airlines’s loans, in addition to other guarantees that exist between the various companies mentioned. If Kingfisher were to be declared bankrupt, lenders would then be able to claim the shares that have been pledged and they could then sell these in order to recoup their money, which is something that Mallya would wish to avoid because it would probably mean that his involvement would be over.
Heineken already owns 37.5 percent of the United Breweries Ltd and there are reports that the Dutch brewer might wish to add UBH shares to its portfolio to increase its involvement in the Indian beer market. There are also reported to be talks going on for Mallya to sell shares in some of the businesses owned by United Spirits Ltd, in a further effort to raise cash for Kingfisher.
Mallya has been trying to find money for Kingfisher for the last few months but no-one seems to be interested in helping out. The Indian government is standing back and foreign airlines do not seem to be interested because of the financial problems. In an effort to stem the losses Kingfisher has significantly reduced the number of daily flights and shut down many of its operations, but this means that the revenues are also falling and the overall debt burden is not being reduced.
While all this is going on, the F1 team continues to do pretty well, although Mallya has not been seen at a race this year. Fr the moment, therefore, it seems that there is money enough in F1. Up to now, the team has been largely funded on loans and Mallya sold a chunk of the F1 company last year as he struggles to balance the books across his empire.
joeblogsf1 
With so much debt attached, would anyone be interested in Mallya’s UB shares?
regards,
Joe,
Readers like myself who visit your site 4 times a day are interested far beyond the paddock and come here for all facets of F1 news. It’s a fascinating industry, business AND a sport and I for one enjoy it all.
This kind of news item is what draws me here. Pls keep up the good work – ever objective but injected with your considered opinion.
Thank you.
Talk about booting the hornets across the park, first you mention your disgraceful decision to travel to Bahrain and tell the truth about what’s happening there, know you are confirming your anti Mallya bias by accurately reporting the dire state of his finances!! Good on you Joe, ignore the nutters and trolls!
I do not see why you would consider it a disgraceful decision. My job is to report about F1 whatever happens and that I what I am going to do. Secondly, I have explained why I have been critical of Mallya and if I consider that it is necessary then it is necessary. End of story. If you don’t agree with that, start your own F1 blog and tell a different story.
Bless you Joe, you get such abuse that I suspect on this occasion the sarcasm is just a bit too subtle.
I suspect that is true… Sorry if you have been joking but some times I cannot see the wood for the trees.
totally a joke comment, sorry if I raised your blood pressure Joe, love the blog!
Joe, as shortcomings go, being too earnest is not on the list of important ones.
To be frank, it seems to me that you show a great deal of patience with those who spout off without knowing even the basics. Small wonder that you would think criticism was coming your way, as I imagine you have to bite your tongue on a regular basis just to maintain your own standards of providing an open forum.
Personally, I admire the fact that you err on the side of openess and tolerance of disagreement (including the uninformed kind), and draw the line only at repeated rudeness. I doubt if I would be able to do as well. That you have mistaken sarcasm for criticism just shows the kind of human frailty we all have in some measure, and the fact that you so easily admit it just adds a bit of charm 😉
I reacted the same way, initially, but quickly saw the sarcasm. Good comment. It will be interesting to have Joe’s take on what is really going on there.
P.S, maybe you could write a piece about Alonso or Schumacher that isn’t fawningly sycophantic, just to get the set!
P.P.S should say now not know in the first post, I hate it when people do that!
The Force India Formula 1 deserves its place, he would have just one top driver but hope to progress this team have the means to pay, it seems to me n not because I do not see Nico Hulkenberg be the home of the situation. http://www.wallpapersf1.com/Nico-Hulkenberg?wallpaper=800
So basically Force India’s sponsor are just Vijay’s companys and they can no longer financially run properly so vijay needs to sell these to make some money to keep Force India running. Have you every come across Just Marketing International Joe?
Just look at these
http://timesofindia.indiatimes.com/business/india-business/ICICI-breaks-ranks-with-Kingfisher-Airlines-lenders/articleshow/12421495.cms
http://timesofindia.indiatimes.com/business/india-business/Reliance-denies-Vijay-Mallya-owned-Kingfisher-stake-buy-talks-report/articleshow/10751326.cms
All the alcohol companies are his and the rest have some involvment with some of his companies such as EADS/Airbus and the the aeroplanes for the failing Kingfisher Airlines
Great insight, Joe, thanks.
It reaffirms the debate – ‘ Is F1 a sport or a business?’
My position has always been that business is the main drive. You must label it a pass-time if you can do it sitting down.
(ref: Darts, Rowing, Sailing, drinking tea etc.)
Darts players stand. F1 drivers sit down. What was your point again?
Humour – too subtle?
Formula One is part of the SPORT of AUTO RACING. Formula One is a business. NASCAR is a business that is also part of the SPORT of auto racing. As is IndyCar, AMLS, LeMans, MotoGP, etc. Football is a sport, the NFL is a business. Soccer is a sport, FIFA is a business.
See how this works?
Wow, you guys are serious and it looks like you really know your stuff.
Sorry man… I did not catch the humour. It was very subtle. I am an armchair expert don’t ya know!
Well Joe its hard not to suspect you have some sort of personal axe to grind with regards to Mallya as this would be of of a minority of articles where you haven’t included some sort of sniping directed his way. You may dismiss this too as being the comment of someone who doesn’t consider the world except through an F1 prism but you would be wrong. There is a limit to what is acceptable commentary from a bone fide journalist and some of your articles have been unacceptably offensive.
If that is the case, I have some great advice for you.
redbreadvan, I wish you TimW and Ed would push off elsewhere and leave this site alone, I, amongst many I have no doubt, enjoy and appreciate Joe’s reporting from the inside of F1, somewhere I will never be party to.
The Force India situation is real, not some agenda, and Joe’s reporting reflects that, I have no doubt if another team was in similar dire straits we’d hear about this in the same reporting tone.
Please give it a rest.
you need to re read my comments,
To be fair, TimW was joking…
Second that.
I couldn’t agree more with you HDM. I can’t figure out why someone is taking the time to tell someone else that he/she doesn’t like what he/she’s reading! Just don’t read it and your life will be much better. And those who enjoy Joe’s writting and news will also have a better life because their readings won’t be polluted such negative comments…
How many guys who go to every F1 race do this same kind of blogs? And you’re not even paying for it. So give Joe and us a break… Thanks in advance for your understanding!
Well said. I don’t see the need for such negativity. People have their own opinions, informed or otherwise, but there’s no need to be abusive.
I have seen a lot of comment from Joe about Mallya, but as with all of his work it has had a far greater level of factual content than any rival writer. Noone else I am aware of even comes close. Any comment which is based on facts is legitimate. I have seen a lot of criticism based on facts here, but I haven’t seen anything that fell short of good journalistic standards. If you found anything unacceptable, that would suggest to me simply that you disagreed with Joe. That is fine, but you should never condemn anybody for saying something you disagree with.
I think the problem is not that Joe has an axe to grind with Mallya… it is that Mallya is a buffoon who makes nothing but negative news for himself. He happens to be involved in Formula One. Joe happens to report Formula One news. You see where this is going right?
If Mallya was not such an idiot… I doubt Joe would be reporting about what an idiot he is.
Truth hurts. Apparently it hurts some people more than others. Are you Vijay or one of his friends, redbreadvan? It is pretty obvious that you are not one of his MANY unpaid employees.
what?? you have it in for VM? Nohhh. Never would have guessed it.
I explain why and you still go on being unpleasant. There is no helping some people.
I fail to see what is unpleasant about this opinion?
I’d have to read it again to remember what you are talking about and I cannot be bothered. If it was unpleasant first time round, it will still be unpleasant now. As for your other posts this evening, I could only motivate myself to press the Trash button.
I hope, for the people working at Sahara Force India, Vijay is able to sort out his empire’s finances. And soon! So they don’t have the looming worries hanging over them on top of the heavy F1 schedule…
I do so prefer getting Joe’s posts in my inbox – there are no comments attached.
Joe,
You’ve taken some flack from people here about your reporting on this issue, some people have taken offence to the fact that you have been openly critical of a man (not so much him personally, but more his business practices) who is seen by a great many people as the embodiment of the great wealth and success that is is possible for an Indian businessman to achieve on the world stage.
All you have really reported though is that despite the great progress made over the past few seasons, the Force India F1 team is not yet in a position to be a self financing operation and as such is dependent upon the ongoing sponsorship and financial support that has to date been provided by assorted Vijay Mallaya controlled businesses.
Your reporting of the apparent troubles that a number of those companies are facing is therefore directly relevant to a true F1 fan as in time these financial difficulties may result in a massively reduced budget (and therefore reduced development programme / race performance) of the Force India F1 team.
Joe, please keep up the good work, just because some people here find it painful to read what you have to report, unfortunately won’t make the facts any less true or relevant.
Thank you.
There are several hundred people who have families to support that are employed either directly or indirectly by Force India working just down the road from where I am typing this. Mallya will not starve if his empire goes under but I suspect he will fair better than many of his employees and suppliers. That is the real issue. As such Joe’s reporting of the background to Mallya’s business dealings is to be applauded.
Real short one here.
I seem to remember seeing some publications saying something along the lines of “the lenders are crazy, their business practices are out of control and they are going to tank the economy”.
I also remember a lot of people saying they are being negative and have no idea what they are talking about. The global economy is built on a solid foundation.
Then someone realised that a 1 bedroom wooden shack in the backwoods of nowhere actually wasn’t worth a million dollars and then everything went down the plughole.
I think its important that people tell it the way they see it. So long as its not an abusive rant devoid of facts there’s nothing wrong with it.
And I have been following Joe’s posts on Force india and Vijay Mallya carefully and I haven’t detected even the slightest hint of a stiletto to the ribs. All I’m seeing is good solid reporting.
if mercedes have an interest on paul di resta would they step in to help the team, if they became short on money ??
I think Paul Di Resta is going to be under preasure at the end of this year if he has to move teams. There’s a lot of young guys out this year showing some real class.
not if Force India keep beating them on the track!
I just wanted to add another voice of support for the blog and what you are doing.
If someone has problems in their business then it is news. Sure, it’s probably not pleasant for them when it’s talked about, but when it is the truth, ignoring it helps no-one, the problems are still there.
Are you employed by Caterham or the parent company?
Read “Blog Rules”.
Any chance of Eddie OBE buying his old team back? 😉
How anyone finds the financial condition of a company sponsoring a F1 team irrelevant is beyond me. Formula 1 is all about business and finance and a team life Force India is no exception just because we like to call it ‘sport’. i for one really enjoy your email blogs as it keeps me right up to date while working on line. I’ll be signing up to the new e-magazine at the end of the month, so keep up the good work.
Anyone who believes you ‘have it in’ for VJ needs to wake up and smell the roses – it seems fairly apparent that his financial troubles are escalating and may well accelerate into a collapse this year. Obviously this is likely to significantly impact Force India and this year’s F1 scene, so news of VJ’s crumbling personal empire, while not the most scintillating information for fans of racing, is genuinely relevant. In the light of VJ having been less than transparent over such matters, having an objective stream of information and a sprinkling of opinion is certainly justified.Keep up the good work Bob.
Thanks for the daily updates on email. If people are going to complain everytime you report some important facts that directly effect the future of a major f1 team, then I don’t know what your suposed to write about.Perhaps a weekly report on Eddie’s shirts?.
If visitors here want to see biased reporting, they could look at the BBC and their ‘reporters’ such as Andrew Benson and others, who sadly will toe the BBC line on matters and not report the things that are of interest outside of the BBC.
I’ll always prefer unbiased reporting, on F1 or any other matter, it is the only way to get at the truth behind all of the smokescreens that the companies and their PR people put up.
Keep it up, Joe, you have plenty of supporters here.
Well done on covering this. It is getting a lot of press in the airline industry and Kingfisher is clearly in dire straights, surprised the F1 media has not picked up on it yet.
Joe, you’ve opened up all sorts of different facets of Formula 1 to me and probably many other readers. Please ignore the ‘trolls’ chap and crack on with the quality reporting I’ve come to enjoy with every visit of this blog.
My experience with the internet is that you will always have a minority of people ‘hating’ or ‘trolling’ (as the terms seem to be), on anything you have to say rather than commenting/challenging/contributing to the discussing in a thoughtful and educated way. The shame of it is, if you then try to address their less than constructive comments, it seems to fuel the flames of their ill-applied-angst. The only medicine for these people is to ignore them as they thrive on people trying to address their generally poor excuse for comments.
What I’m trying to say is that I see in the comments you’ve tried to address some of the trolls like TimW, redbreadvan and Ed. There I feel a simpler tactic would be to ignore these comments that, in my opinion, are just made to try and get a rise out of you.
That is just how I see it anyway. I’m not suggesting you cherry pick and only respond to positive commentary of your editorials. But they’re hardly constructive comments that add to the article in anyway or offer us extra insight to consider.
In short, crack on with the good stuff and ignore these bumbling idiots. There are far greater comments to consider replying too such as ones from ‘build’ and ‘davcuk’ who actually want to further the conversation in some way. Those are the kind of comments that I would prefer to see you spending your available time replying to the readership.
LB
thank you very much. and wholeheartedly agree that joe shows us a different side of f1 that the tv doesnt
Spot on LB. The tiresome adolescent ‘ah, I was only kidding…’ may as well be reversed in the next breath and then reversed in the next.
Just how separate or not is the F1 team from the other companies in VJ’s group? ie is the team a subsidiary of any higher holding company which also holds other parts?
I thought that Mr Sahara had bought a large chunk of the team some time back (although it was denied a the time) and was now a substantial shareholder in the team, 30% or more as I remember it.
If VJ’s empire goes bankrupt it looks rather like Japanese company structures used to, all leaning on each other (or now I think of it, the world banking system) in that if one falls it will ensure the collapse of the whole lot. Thus the structure of ownership of the F1 team is important. Will it stand up if India falls over?
I know guys still cleaning up Polly Peck, BCCI, don’t get me started on Lehman or MF Global. They’re not started. I do think they finally buried Investors Overseas, but that was comparatively easy, no precious toes to tread on. I tried to study trust law, and was good enough to see greater minds than mine perished because there is first little interest, then a tiny pool of talent, to attempt reform. I point instead to other feudal hangovers we could shed and in an instant lead the world again. Men who want to trade and provide gravitate to robust systems. We spent more on empire in cash than we gained because who did that, cutthroat as they were, belived in enlightenment through action, and the action they wanted was copying and wider provision throughout the world. Everyone wants payback and something better for the kids. But our legal system became a pig’s trough, not a fount of wealth, and in my life it has been disallowed to say who gained their freedom from empire, took than entire from billions, selling only a half remembered hope which sounds well to who benefited.
I don’t know why people are getting so grumpy at Joe for writing an article that is neither flattering, or for that matter unfairly critical of VM and his business empire where in fact the article is merely observational and objective. Anyway I feel that Force India’s target of finishing fifth this year may be a bit beyond and aiming for sixth is a little more realistic. If VM financial woes do negatively affect that team that would be a great shame, although I suspect new financiers will be found as the foundations of the team are solid and have been around for a long time.
I believe there was one instance of Joe revealing that he was PO’d at VM for having lied to him. Not being a robot, Joe was frank about how it struck him. Seemed understandable to me, as Joe clearly described what he was going on about and why, without pretending that it did not matter to him when it clearly did.
Beyond that one instance, his other posts here have been long on fact and short on personal feeling, but it appears that some folks can’t tell the difference.
My personal response to Joe expressing his reaction to being lied to was positive. Gave me reason to see that a Real Person ™ is the force behind the blog. It led me to have more trust, not less, in what I find here. This is because I believe anyone who pretends to be an automaton is phony. Whatever imperfections one might find here, phoniness in lieu of integrity is not among them. That one simple fact is reason for respect and high regard where I come from…
I remember the VJM fib. I forget the details, but it was a biggie, and insulting for the assumption of stupidity, and the sheer lack of effort to know who he was talking to. I slagged Joe for being poor at PR to present his views lately, but how on earth do you deal with a rich businessman who treats you like a silly dancing girl? There are nice dancing girls who wouldn’t fall for a second for the stories that were bandied around. Now, there’s less stories, far fewer girls to impress, and a rather rocky path for a playboy to take. Actually, that’s the difference between VJ and TF. One of them is not a insecure playboy. But never say VJ can’t redeem himself, just he is hamstrung by his own talk, i reckon.
Hi John, (the only John)
The Formula One pitlane and padock is always going to attract a certain breed of male…
best
p
But I am a mere 20 years away from getting my business together and flying a company jet. How can you say such things??
(that would still put me 10 years younger than my dad when I was born, and the only reason i got held behind is of course because of evil step siblings who took everything . . careful John . . forget the libel case, there’s a script in this which will make it up . .)
but seriously give some hope to my future stylish lecherousness that poor twenty somethings occasionally fall for . .
Incidentally, just because it threw me back in so many wonderful ways, this link, to the thread and the nose, is a pic of Tom Hiddleston being the doppelgänger of my father, as i remember him, and yes my dad was a little bit racy once: http://goo.gl/OgqRQ (and my mom was truly hot too, though one should not say that, it’s just true)
And my mom comes in and says Hiddleston has a nicer nose than my pop. Aha! News just in, big conks are hard to get perfect, it goes to the next generation . . . Where is Biggus when you need him for comment ??
(p.p.s. terrible thing, my dad looked like that well into his 70s, and Hiddlestone is i think 32 .. devilish attractive though he be. By the by, now you know why the smug so – and – so caught my mom . .!)
Interesting insight – great article, thanks Joe.
I find it interesting that VJ is not fronting up at the races. I do hope the team survives this (with or without him), they’ve been rather a breath of fresh air in F1.
Bill.
Joe,
Interesting you brought this topic up, now that Sahara has replaced Kingfisher on the Force India F1 cars, does anyone know what Sahara group’s main business is? They sponsor the Indian cricket team too, but I haven’t seen or heard of any profitable business they run. It puzzles me why they would want to sponsor something like F1 and how long they would stay interested in owning an F1 team. Any thoughts?
Joe, this is clearley not a racial issue but bad business.Oooo im shocked at the scale of the debt he has, this clearly isn’t a good situation. Great blog and very interesting journlism, keep up this great work joe, look forward to reading more…..im getting spoiled..
It’s really all down the name, isn’t it guys? I mean –you name an airline after a beer???? Seriously, Let’s Fly Johnnie Walker to London!!! Wouldn’t you be eying the crew just a little to closely to be comfortable?
Always good to hear how the wheels are turning behind the headlines!!
G Steven
Name an airline after a bird instead so let’s call it Kingfisher Airlines.Seems reasonable.
It has been mentioned on other forums how biased Joe is against FI or rather VJ. Some have put it down to his close friend being the manager of Luizzi -who knows?
I remain personally convinced Joe has little or no love for VJ on a personal level and to me it shows in the writing. Same goes for Pitpass. It doesn’t stop me from reading or stopping by here regularly.
I am amazed how F1 can disolve into such childish fanboi nonsense, all these grown men fawning over a journalist makes me cringe.
Oh and as an aside I am a creditor of FI (since Jordan days’) and the team remains very upbeat from my dealings with them…Even if they are a um err a um a tad slow with their payments
You make one decent point in this stream of consciousness. Slow with their payments…
Being slow in payments is surely not unique in the annals of F1?
Tell you what Joe, if you really want to see how bad Indian trolls can get, write something about Sachin Tendulkar not necessarily being the greatest cricketer that ever drew breath…
I will pass on that one.
I think there’s laws against advertising alcohol in India so by naming an airline after the beer the problem is neatly sidestepped.
So neatly, in fact, that it has cost several billion dollars and is dragging down the entire empire. Brilliant business concept.
yes clear anti VM bias.
This goes along with your clear anti Alonso, Schumacher, Vettel, Webber, Hamilton, Button, Ferrari, Massa, Williams, Mercedes etc etc. bias 😉
Keep up the good work! Love your ‘bias’ 🙂
I am anti-everything!
and most normal people love your blog for it. forget the haters and continue on a blog that is much better then the likes of adam cooper and james allen
AirAsia is in a spot of bother too… As are most international long haul low cost airlines..
http://tinyurl.com/7oju8su
You are confusing several things here. AirAsia and AirAsiaX. AirASiaX was meant to be a higher-end international carrier (the X meaning “extra”), AirAsia is a low-cost carrier international. Since Tony Fernandes took over the management of Malaysian Airline System (MAS), there has been no logic in having two competing high-end airlines under the same management, so AirAsiaX, which is far less established than MAS, has been pulled back.
Have to say it, TF really gets himself in a twist with marketing. Before you cut me down TF was a helluva guy at Warner (he was indeed by all reputes) but “old media” is about distribution control. Almost absolutely apposite ideas to normal marketing. If you own the sales end, and most music and movie companies have their sales front dependant on their finances, then marketing a brand requires none of the same tenacious values that are needed compared with selling through a controlled channel a packaged boy band. You have a temporary push, but remain above it all, inviolate of consequences – in branding terms – of your latest flop. Seriously, ask Tony – I’ve been fussing myself over this for a while. Does he understand brands marketing over the long haul? You see Warner was the conduit, and he the gatekeeper. That is the opposite of building up. Peter S. embodied the principal I am thinking of: he came back to buy back the use of his name, a simple honour thing. If you franchise your name, you may pay a price more than the franchise paid you.
TL,DR: Don’t rent your name unless you were paid enough your name was truly sold.
On a slightly different subject,does anybody think that Vettel is beginning to crack. it looks like Webber has the measure of him this year, and his remarks concerning karthikeyan were a bit unfair in the circumstances .if he had a gripe about their contact during the race, he should have spoken to him privately. The impact of a remark like that from a World Champion, can have a very negative effect on a lesser known drivers career prospects. vettel knows this and should have chosen his words better in front of the media.i well remember Vettel in the early days of his f1 career spending a few of them in the gravel traps.
I think that Vettel may not have the mental toughness that he may need to keep pushing when he doesn’t have the best machinery on the track.
No I do not want to get into discussions about front wings and the rest of it.
The outburst appears to em to be a manifestation of his frustration at not being at the front in the best machinery and driving past everyone.
I think this is also a function of age and experience.
Webber may be in a better position this season because he doesn’t get as frustrated and has the maturity and mental toughness to push himself despite not having a car that is miles ahead of the pack.
Maybe Webber is the one who has the drive to keep looking for and grinding out the tenths while Vettel keeps looking for the seconds and when they don’t come his way he is struggling.
Joe, don’t be surprised to SAB/Miller jump in shortly…
This whole scenario will soon develope into a ‘fire sale” and SAB will buy the brewery for a song. SAB has a serious war chest and could buy Vijay out without batting an eyelid…
A general point:
The problem with the internet is it gives us all the false impression that our point of view matters. It also exposes the human need for us all to agree or disagree on a subject. I forget the technical term but the gist is “if you disagree with me then you then you are my sworn enemy”. Absolute boswelox.
Posters need to take a step back and realise that a blog is someone’s opinion. Joe can back that up with research and experience. How many of us can do that? I am an weapons-grade F1 nerd but I rely on all second hand info like most F1 fans. He can.
This is not a psychophantic post either. I often read things on here that don’t interest me per se, or things that challenge what I would like to be the truth. I may not agree with Joe’s point of view on things. As a Williams fan, there have been many things Joe has written that are uncomfortable for me to hear. Some I agree with, some I don’t.
I still however come back every day to see what the Saward angle is.
In summary, it is possible to read this blog, respect Joe’s opinion and simultaneously disagree or dislike everything on it!
It is shame that the original article seems to be obscured in bickering which seems all too common on website forums these days. I would think that financially Force India has a lot to be concerned about. Doubt there is much new funding, if any, coming in, and further It is alledged and I must stress that while my source is reliable I personally do not know for a fact, that fund raising exercises undertaken to raise capital for the stricken UB/Kingfisher group saw capital diverted to the F1 team and not to bail out the group as had been agreed. IF this is true and the group goes under then the F1 team would regretably be finished as any administrator will be looking to recover the money.
In a normal business situation, when you start you have shareholders who put in funds, in exchange for equity (Shares) in the business. When the business needs additional capital, then the company issues more shares, to raise the amount. Of course the down side is that it can dilute the original share holder’s equity holding in the business.
What appears to have happen in this case, as it straight from the play book of an MBA program on debt financing, that the shareholders didn’t have any spare cash to invest.
The Bankers for the Airline, came up with an alternative way to keep the business a float. They would advance – loan the airline funds, but wanted a guarantee, some form of security. VJ Mallya put up his private equity in his other companies. The value of the shares would be for a lot more than the cash advance the Bank – Airline required. Remember shares go up and down. As for his other companies, he is not the sole owner, meaning he doesn’t own 100% of that company, so could not put up “general” company shares as security.
The Airline should be in theory, ring fenced from his other companies. So in the “West”, we would put it down, do a pre-pac admin, or Chapter 11, or let it go bust. End of Story. The reason it is still there means that the shares the Bankers hold, as security on the loans, can be called in, and VJ Mallya loses control of his companies.
Any person can go to the Bankers holding the shares, and make a deal to buy the shares directly from them. We know that Diageo is looking at the Beer business right now, as it has been highlighted in all the major Business sections of the UK Press.
When things are going well in the airline business. They throw off a lot of cash. But that slows down when you start a price war with a rival. The way the business was structured is from the mid 2000’s when Debt Financing was the so called way forward. Of course we know from August 2007 that it was the wrong way, as many companies and sovereign wealth funds have found out.
The only parts of his group doing well are the Beer and Fertilizer business in India. The rest have too much debt on them. That is how he purchased them in the beginning. Also the Banks who loaned him funds to acquire the business would also have a charge over a percentage of the equity, until the debt is paid down. So his room to wiggle is very limited. Plus he has too many toys and they have high burn rate on the limited cash flow.