Last week I overlooked something which may (or may not) end up being rather important: the Securities and Exchange Board of India (SEBI) announced that it has asked banks in India to freeze bank accounts belonging to the Sahara group and some of its directors.
Sahara is the part-owner and primary sponsor (in terms of livery) of the Force India F1 team.
To understand the story one needs to look back at a series of battles dating back more than five years between Sahara and Indian regulators over how the company conducts its business. Early in 2012 this led the authorities to order Sahara to refund $4.4 billion to its 30 million small investors, with suitable interest. Sahara fought the charge again, but in August it lost its case in the Indian Supreme Court and was told to pay up by the end of November. Sahara has failed to do this, despite being given additional time to find the money. The company has cast itself as a victim in the affair and says that it has paid all but $670 million of the $4.4 billion.
Six hundred and seventy million dollars is no small sum of money and so SEBI has now seized accounts belonging to Subrata Roy, three other directors, and to two Sahara group companies. The seizures did not include Sahara’s foreign-based companies. The authorities have been showing some interest in these because they have been spending money while the current fight have been ongoing. At the end of 2010 Aamby Valley (Mauritius) Ltd was set up by Sahara and soon spent $762 million to buy London’s Grosvenor House Hotel. This was followed last year by the purchase of New York’s Plaza Hotel for $600 million. According to the Indian media, the country’s Financial Intelligence Unit of the Ministry of Finance believes that Aamby Valley paid around $80 million to the Force India Formula One Team Ltd at the end of 2011, as a sponsorship. At the same time Sahara acquired almost half the shares in the team, although it is not clear whether this was related to the sponsorship, or whether there was a separate transaction. In July 2012 a company called Aamby Valley (UK) Ltd was established in England with three directors being Roy Sahara’s wife Swapna and his two sons Sushanto and Seemanto.
The seizing of the Indian accounts is not going to help Sahara with its cash-flow in India as financial institutions are not likely to lend the firm more until the problems are sorted out. This means that some of Sahara’s real estate development projects in India may have to be put on hold, which means that revenues could slow down.
One presumes that one of the Aamby Valley companies will continue to fund Force India this year, along with money from similar companies belonging to co-owner Vijay Mallya, in addition to the money that comes in from TV rights. Mallya is also in financial difficulties because of his disastrous adventures with Kingfisher Airlines, which continues to provide plenty of stories from day to day in the Indian media.
The team continues to say that it does not have money trouble – which is good news – but no-one has yet explained why there has been such a lengthy delay over the choice of drivers, the implication clearly being that money (or perhaps cheap engines in the future) is an important element in the decision-making process.