The Force India F1 team had a good weekend at Spa with Nico Hulkenberg fourth and Paul di Resta 10th. Their combined points mean that the Silverstone team has now overtaken Williams F1 for seventh place in the Constructors’ Championship. This is great news for the team, but away in India there has been some pretty interesting action going on in business circles, where the two partners in the F1 team – Vijay Mallya and Roy Subrata Sahara – have both been getting into the newspapers, for all the wrong reasons. Sahara has been ordered by the Supreme Court of India to refund an astonishing $3.1 billion to 22 million investors in his micro-banking companies, on the grounds that his fund-raising techniques do not meet the country’s regulatory standards. The payments must be made within three months and Sahara must alo pay interest at 15 percent per annum on each of the investments.
This is a huge financial hit.
The original decision was made last year by the Securities Exchange Board of India, but Sahara appealed to the country’s highest court, claiming it was not right. The Supreme Court has made it clear that Sahara must do as he has been ordered to do, or face more legal trouble. Whatever the case, the news is going to have a significant effect on the firm’s financial health, not only in terms of its assets, but also its cash flow.
At the same time Mallya’s entrepreneurial adventures are back in the newspapers with rumours that an announcement is due shortly that will result in the British drinks company Diageo (owner of Johnnie Walker) buying a 27 percent share of United Spirits Limited (USL), which is the most valuable company in Mallya’s United Breweries Holdings (UBH) empire. The word is that Diageo will pay around $550 million for the shares. The money raised is expected to be used by Mallya to pay off some of the debts that the disastrous Kingfisher Airlines has created. This would still leave Kingfisher with debts of more than $1.2 billion and his future control of USL would be in doubt, in the future, as the remaining shares that UBH owns amount to only 28 percent of the company and almost all of that stake has, according to the Indian financial press, been pledged to secure other Kingfisher loans, which will have to be paid at some point or other. If not, the pledged shares could end up being sold on the open market, which would mean that UBH would lose control of USL. The need for such a deal seems to have become pressing as the Centre for Asia Pacific Aviation has recently published an analysis of Kingfisher’s situation and says that the airline needs about $600 million in the next two months, and access to a further $400 million over the next 12-18 months in order to fully fund its business plan. If this does not happen the business will face an operational shutdown.
That would be a huge embarrassment for Mallya and the word from India is that he would rather sell a stake in USL than close the airline.
With both partners in a financial squeeze, the Formula 1 team’s situation would seem to be rather precarious, as all the major sponsors on the cars are owned by Sahara or Mallya.
There has been talk for some time the team is for sale, but Mallya does not want to be seen to be failing and is no doubt looking for investors who will keep him in charge – as Sahara did this time last year.
Is there another Sahara out there?