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?
So will VJ finally say ta-ta…?
Shouldn’t that be Tata?
Only star I could see in FI’s weekend was Hulk. Di Resta is just not cutting it – FI urgently needs a strategist to maintain their race at the sharp end. Their standing in the points over Williams is only thanks to the dependability of Maldonado.
Di Resta had no KERS all race, so I’d say getting 10th was pretty good considering Eau Rouge and the Kemmel Straight were a nightmare for him.
Getting a point after having no KERS for the entire race seems like a decent performance to me.
Agree on Maldonado
Joe, a brilliant analysis. With the understanding of Hindi, the irony here becomes much sharper. ‘Sahara’ translates to support. SFI’s support has been dealt a sledgehammer blow for reasons apparent. It would be a shame if VJM were to end up as India’s Icarus.
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Great insight Joe. The Sahara ruling seems harsh in light of the leniency afforded the likes of Lehmans et al. I’ve not followed the story til now but if the micro-banking transgressions were purely regulatory (as opposed to causing hardship to customers or investors) then it seems as though the courts’ wanted to give his business a mortal blow rather than just a fitting penalty. It puts me in mind of the absurd $100m fine McLaren was dished out by the FIA a few years back…
I presume that this micro – lending outfit is backstopped by the IMF or similar organisations.
Just how do you integrate on the ground action like that with a carefree big shot image?
Or is it, instead, that losses are being move around, when someone else foots the bill.
Reminds me of when Mittal hit up the EBRD for free loans to expand into ex – Soviet steel production.
All I am saying is there is a serious mismatch between who are by nature “do gooders” safe in their institutions and academic papers, and sharp business operators.
No wonder M.B. are a bit put out by the image of the sport. Oh, hang on! M.B. supplies engines and drivers to Force India, and have a bit of clout with the team. Oh what a twisted web we weave etc. H
What Force India really needs is a team principle with Formula One experience. There is an Italian gentleman, currently resting, who would fit the bill, so to speak…
So it is a good idea to bring back a sleazy old cheat? The team is really being run by Otmar Szafnauer, who has plenty of F1 experience.
I’m not VJM’s biggest fan, but I’d take him over Flav any day.
Someone get Mark Zuckerberg on the phone. Team Facebook, blue and white livery, all the social network exposure that any sponsor could ever want. Done.
Was thinking Giuseppe Lucchini of BMS Scuderia Italia, remember them?
Joe,
I remember the comments getting quite personal in response to a post you wrote some months ago with regard to VJ Mallya & his airline.
You have postulated for some time that the F1 team may find itself getting caught up in the turmoil that is engulfing VJ’s business interests. It looks very much like you are about to be proven right, which is a real shame for the many men and women who have worked so hard to build what is a very respectable midfield team.
But kudos to you for your foresight.
Mike.
As one of those who think VJM a walking time bomb, and so having no doubt added to that often heated conversation, I found it very hard to come down on the “the man’s no good” side of things.
Particularly, though I know none of the team, Paul di Resta is a favourite of mine, and his after race interviews, sadly now infrequent, were always eloquent and insightful. For a rookie to present so well made my heart glow for the sport.
But time and time again I have seen a rotten “big man” tear apart a organisation. I started my career at a company which was then the fastest growing publisher on the LSE main list, and somehow this was so, despite top management might have made VJM look good.
The reaction on the shop floor was one of resilience, as well as resentment. We blew away targets as a FU. I can never forget being told to hide under my desk by my immediate boss, when the sales director first walked the floor. My boss was trying to protect me from the random outbursts and gratuitous firings that would happen on such occasions. That was week 1 of my employment. Ironically, I had already scored my first sale, but the paperwork was jammed up at the customer. But “blanking” a week was one of many excuses for summary dismissal, along with “appearing” to “bat for the other team”. (I had long hair at the time).
There was no reason at all for that company to fail. We had almost any sports contract going, from PGA, to LTA, to in fact Bernie (though he was a early defector, he sussed the BS real quick).
But the founder was busy playing games with other companies. Despite he had started from nothing, he was off playing funny with all sorts. e.g. what top publisher owns a tiny HK print broker to where all the contracts went . . and far besides. A conference division was created, and thankfully, I was not placed there, I heard of delegates who had paid 5 figure sums, chasing this same top management with intent to do physical harm, around hotels.
The characteristic I see in common, is that – and it is always tempting to any company – somehow the money is all mixed up. A real treasury dept. can sort all that out. But when it seems only one man knows what is where . .
Now if you are hiring smart people, they start to wonder. Eventually that air of getting on with it as a kind of defiance turns into realizing you might be the only ones working hard. Now *that* is demoralizing, no matter what distance you are from the center of no-operations.
And who wants to be the PR stooge for a business cheat?
Thus is was a gut instinct for me to read what Joe had to say about VJM, and agree this is not going to end prettily.
I wish there was a way that FI could do a management buyout, but with the intricacy of iffy deals besetting the Mallaya “empire” I doubt anyone would have the guts to look. Or stamina to keep looking, until they unearth what is real and what is not.
That sucks even more, as there are almost no opportunities to invest profitably, unless you are a serious player, and it seems to me that who is doing okay, are merely exploiting policy stupidities on a massive scale. I digress . .
. . .
There simply should be better policing of the background of who does deals in F1.
The problem is that to do that, the FIA need to fund a crack team of experienced deal makers and financiers.
Maybe that is one thing for which they want more money. You would really need a big wedge of folding to score the hires,
You get idiots running teams, and I do not mean the chancers and garagistes and dedicated hopefuls of the past, but people who detract, create unsavoury if unrelated headlines, and expect F1 to provide them PR halo. Well, no, that has to go. It hurts the atmosphere, new brand interest, and can damage good careers.
The chancers of old, well not even that old, brought new interest, new sponsor names, and excitement to the sport.
I think we need a turnaround that both polices the ego players, and still lets in some of the new.
I also think JT is holding out for at least comparable reasons. Simply because the market has become stagnant. Where is the career path that JT took, into F1? I know it can be found, but the increasingly closed shop Bernie created is no help. When I talk to advertisers about F1, not small ones either, but not the huge names, they wonder how to get in. Fresh teams, or team buyouts or any of the suggestions I have put forth here before, would create opportunity, and money, and vibrancy.
Footnote: I just searched LinkedIn for the company I started at, No results. I guess it was that embarrassing, not that I mind, I was 17.
Is there another Sahara out there?
>> How interesting statement. The word Sahara in hindi means “Help”
Given the pace of the Williams, it really is shocking to see them below Force India. Maldonado is very fast, but they really need to find a way to calm him down…if that is possible! He should have bagged many, many more points. Barrichello would have delivered some good results in that car.
Senna has been a bit too hit and miss…
Welcome back JoJ
Mmm 15% is that the normal interest rate in India?
It looks most unlikely that sufficient funds will be available to bail out VJM’s businesses. They are in a position a little like Lotus Group with huge loans and not a lot of profit from current activities. I think some had expected Sahara to take over the team and VJ to exit quietly but his can not happen now. VJ’s debts are so huge that they must be appreciating dailiy by $600,000 in interest. So I cannot see much future for the team unless maybe VW buy them.
Hi rpaco, and thanks for your most welcome hello.
To answer you needs me to write a paper length reply, and if soon my little company comes out of the shadows, this is so definitely what I would like to answer, yet all I can say is that I am deeply worried how VJM’s empire has become involved in the apposite of his commercial style, and having read many early papers on creating micro finance I just cannot get my head around why he would be so involved. The perpetual trouble with many large economies (and even our own, in narrow way) is simple fairness in property law. Four drafts to reply to you each 3K words plus, failed even to start to explain my incredulity, let alone approach the dynamics and psychologies of such markets.
Maybe if my little company finally emerges from the shadows, which is in fact intended soon, with intense trepidation, then I will be able to express myself in the correct context. But I would feel a heel, if I were simply to write this as pure opinion, and have nobody to assist me with checking the numbers, and no current date.
What a proud social climber is doing with a micro finance business I have no idea. The research papers I used to read were that is was a fairly safe game, because it emancipated abandoned or widowed women, and so delinquency was low.
I don’t think 15% is outrageous interest, if annual, unsecured, and with tremendous inflation impacting the world VJM comes from.
But there are many other factors I worry about, such as what could be done with tiny money in some provinces, and why there is a loss, against the findings of many earlier studies. My mind wanders as to what can be done, with armies of the desperate protected under the aegis of the UN or similar body.
The mere thought of this rings alarm bells with me, clanging at every level.
My “holiday” was spent wondering what must be said. You know my interest is in markets, top to bottom. It is the small things in this world which protect the great. But at no time have we had so many instant men of riches and so few remembering or respecting hardship of their own.
For now, then, I shall spare Mr. Mallaya my fears, he is not a hands on manager, like me, I think, who wants to keep asking questions. He doesn’t even seem to have retained someone he trusts to fill that role. This micro finance news raised the hairs on my arms but might be so distant from him or too close for comfort.
Without expanding my arguments, because they could invite legal action, however spurious, this is the first time I want what is possible, in my darkest suspicions about VJM, to be untrue.
Excellent analysis as always Joe!
This blog reminds me of something that someone once said, that owning an airline is the quickest way to become a millionaire – for a billionaire…
Richard Branson: “The easiest way to become a millionaire is to start off a billionaire and go into the airline business.”
However, I think he is still considered a billionaire.
How do you make a million in motor racing?
Start with two…
Joe, as I read it, the million you suggest one would make in motor racing on a two million investment is a 50% return on investment. Casino good if made in a year, still not too bad if made over five years time (considering current economical situation in the world).