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Problems mounting up for Force India boss Vijay Mallya
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Posted By: James Allen  |  13 Oct 2012   |  11:49 pm GMT  |  67 comments

The problems of Sahara Force India boss Vijay Mallya seem to be mounting up at the moment.

This weekend he was hit with a non-bailable arrest warrant in Hyderabad, India for non payments, due to bounced cheques for use of the city’s airport, relating to his failing airline Kingfisher. While debts in his drinks business could force him to sell a controlling interest to one of his biggest rivals.

The airline, once the second largest in India, has net debts of $1.7 billion and its sales have fallen 87% from a year ago to $222m.

According to The Economist, the mistake made by the creditor banks in India was to allow it to stagger on rather than force it into bankruptcy, compounding the problems.

The paper claims that the banks in India have the power to bring him down, but are generally reluctant to confront the well known tycoons in the country.

This and the issue of the warrant, will certainly provide a notable side show at the Indian Grand Prix in Delhi in two weeks time.

Mallya’s airline crisis comes on top of problems with his core drinks business; there are concerns about his unlisted companies, while of the drinks companies that are stock market listed, United Spirits has $1.6 billion of net debt and drinks giant Diageo (a McLaren sponsor via its Johnnie Walker brand) is circling the company with a view to coming in to take control if Mallya is forced to sell to stay afloat.

The Economist notes that there is also a threat of collateral damage from the probable failure of the airline, “Mallya’s main listed holding vehicle has $1.8 billion of guarantees to the airline’s banks and to aircraft leasing firms. Its latest annual report says it is ‘reasonably confident’ that these will not be invoked.

“If they were, it might be bust too,” concludes the paper.

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67 Comments
  1. Chromatic says:

    Could Mr Mallya be another one of those who are planning on attending the last grand prix in Brazil with his wife and then not leaving ever again ?

      1. build says:

        James,
        I’m not as amused because so many will hurt by this man. Already the wife of one of his employees has committed suicide. It is a very sad thing that one man can cause so much pain to so many.

        regards,

      2. Jim Dee says:

        I was ROFL’ing so I was more ammused than James? But then I think comedy directed at unfortunate circumstances is funny and I am not going to pretend that I am morally superior by saying “one is not ammused!”

        To quote the late Mr Hitchens gloating over peoples misfortunes is one of the purposes of life.

        More importantly how is he going to manage his F1 team from Brazil? Will the team be renamed Force India – Undercover.

      3. For Sure says:

        Really? that’s very sad..

      4. hugotheboss says:

        Interesting piece suggesting the tower of cards for Mallya is actually about to collapse http://wp.me/p2HWOP-ba

      5. AJ says:

        @ Build
        Apparently his come uppance is nigh http://wp.me/p2HWOP-ba

    1. One of the reasons why the business is in diffs is due to the an 87% decrease in sales which would wipe most businesses out and look down your high street at the lack of shops still open, sign of the times!

      It’s always sad when a business is hit as when you break them down they are just a group of people who have families, bills and dreams!

      That aside, they have done so really well this season and as I’m a brit its great to see Paul Di Resta push so well.

  2. Rich C says:

    “sales have fallen 87% from a year ago” ??

    All I can say is, holy crap!!

    1. Wayne says:

      I know, right – how is that even possible for an airline?

      1. Pranav says:

        The threat of cancelled flights.

        I had a choice of flying KFA or another airline. I chose the other one due to doubts over KFA. While waiting at the airport to board my flight, KFA cancelled all their flights, including the one I would’ve been on if I was flying with them.

      2. Peter Freeman says:

        But then this is not ‘failing business’ this is deliberate financial suicide!

    2. Andrew Carter says:

      I read somewhere (probably Autosport) that Kingfisher’s entire fleet has been grounded for the last 2 weeks, so shouldn’t that be 100% down.

  3. kp says:

    He’s a businessman and, as with all businessmen, not a man to be trusted with matters pertaining to money.

    Aside from such, he comes across as a most genial fellow!

    1. build says:

      So all businessmen like myself cannot be trusted?

      James is a businessmen so include him and quite a few other journalists and all team principles and all drivers, etc, etc.

      Perhaps, think before you type?

      regards,

      1. Jim Dee says:

        “So all businessmen like myself cannot be trusted?” keep reading what KP said he extended the premise with the condition money. Which is a fair comment.

        Please come up with posative comments everything you type is disrespectful and negative.

    2. Zhenya says:

      Exactly.

    3. FuelGreener says:

      Everything you’ve used today, from the chemicals used to produce your toothbrush, to the TV you watched the Grand Prix on, to the computer you’ve used to type your nonsense post, wouldn’t have ever existed with the businessmen you mistrust having taken an entrepreneurial risk to create something.

    4. For Sure says:

      I think you should realize that not all businessmen are like the CEOs of WallStreet
      Some are just hard working human being, driven to succeed.

  4. Cedgy says:

    Maybe Mallya could learn a lesson or two on how to run a successful F1 team from Peter Sauber?

    1. DonSimón says:

      +1

      He has been a force for good in our sport. I hope this doesn’t hurt the team. Maybe explains DiRs long face??

      1. Jonathan says:

        +1 indeed! With the whole saga of hamilton going to mercedes and perez taking his seat at mclaren i did feel for peter sauber as he has then lost yet another talented young driver to help take his team forward as he did with raikkonen! I know you cant blame a driver for going from sauber to mclaren but you cant help but sympathise with peter!

        In relation to the force india situation I hope the get taken over by a proper british motorsport enthusiast who is passionate about taking them forward!

  5. James, do you think Sahara will pick up Mallya’s share if he needs to sell? Or could there be another factory buyer such as Honda?

    1. Rainman says:

      I don’t think so. Sahara and it’s founder and Chairman, Subrata Roy, are in big trouble. two group companies were recently ordered by the court to refund over US$3.1 billion of money plus 15% interest to 22 million (!) small investors who bought convertible debentures. The deadline to refund is about 6 weeks away. Sahara are in just as a precarious position as Dr. ( honorary doctorate) Mallya,

      1. build says:

        I suspect Subrata Roy is more interested in UB than Force India. His interest in Force India may be his lever to get priority in the queue for the very profitable brewery … if he offers support to Force India and a position to VJM???

        Also Sahara have the assets to weather the current storm as politics and business in India are the same entity.

        regards,

  6. chris green says:

    lots of employees haven’t been paid in months.

    f1 relies on sponsorship from a business community that has become completely unstable.

    in the 1940′s the average length of time that a company ‘share’ or stock certificate was held by an investor was 18 months. today it’s 17 seconds. go figure

    just another example of the unsustainable business model of f1.

    bring back kit cars!

    1. Johan says:

      “today it’s 17 seconds.”
      Source?

      1. iceman says:

        Googling for “average 17 seconds” I learn such facts as:
        The average time gallery visitors spend looking at a work of art is 17 seconds
        US television stations donate an average of 17 seconds an hour to public service advertising
        The average person interrupts after listening for 17 seconds
        The cheapest CAPTCHA bypassing service has an average response time of 17 seconds
        On average you form your opinion of someone within 17 seconds of meeting them for the first time

        I’m also going to suggest that on average, a new made-up statistic is invented every 17 seconds.

      2. Johan says:

        Actually there are 17 new statistics invented every second. I know because I’ve read that. Somewhere.

      3. Phil says:

        I don’t have a source, but that number looks like it could very well be accurate.

        The majority of trading on the stock market is now undertaken by automated high-frequency trading software. It’s a fiscal arms race, with each trading house protecting their software, and coming up with ways to hide large buys or sells while at the same time detecting large buys or sells being made by their competitors.

        Buying and selling lots of stock quickly only makes you fractions of pennies profit each time, but when you’re doing thousands of trades a second (at a conservative estimate) that soon adds up into real money.

  7. Jim Dee says:

    Just got a note from the bank today myself. 2.99% interest rate offer on my mortgage they said. If Vijay took that on it would be 32 million a month for 25 years.

  8. Martin says:

    Besides the fate of the F1 team, the other relevant point to F1 would be Mallya’s position on World Motor Sport Council. I have no idea if this has any significance with things such as the Concorde agreement.

  9. veeru says:

    oh…the Monaco yacht party days are over?

    I don’t pity this dude. he (and his son) brought it upon themselves…

  10. Adrian Morse says:

    If Mallya goes down, is that end of Force India?

  11. Alex says:

    James,how much a team like Force India is worth right now if is for sale?

  12. Thomas, Canada says:

    When the Economist says there is a threat of collateral damage, do they mean this could be the end for Force India?

    They’ve disappointed this year; maybe they didn’t have the funds to compete…it may also explain why both drivers are rumoured to be leaving.

  13. Zhenya says:

    “Sahara Team” next year?

  14. AlexD says:

    I fell sorry for people in India working for his Company, hopefully they will find good jobs. Airline did not pay the salary as of April, but on the other hand, guess who is the one with the biggest yacht in the paddock?

    1. build says:

      Alex,
      The wages paid in April were for December so they were still owed wages for Jan, Feb and Mar. They have since been paid Feb and March (according to the media). As of the beginning of October the media claims the staff are owed *SEVEN* months salary.

      I know that sounds unbelievable but go to google and search “kingfisher airlines” and you will see that it is true.

      And, it makes me very, very angry.

      regards,

      1. F1fan4life says:

        I believe like any corporation it is its own entity. The head of the corporation is not liable pay off company debt with personal assets. They are two entirely different things. The board on the company should ensure it is run properly. If it isn’t the company’s assets can be usedon debt but unless his yatch is owned by the company it’s irrelevant.

      2. Dave says:

        I have no doubt there will be Squillions harvested away, untouchable by the company and it’s creditors.
        The small companies providing the services and the staff will be the ones to pay for this.
        I think you’ll find Force India to be a very hollow shell when the time comes to divi-up.

      3. JCA says:

        In many countries the board of directors are liable for the company’s debt if there has been mismanagement, if the company fails because of bigger financial factors they are safe. But this business of large loans to affiliates may sink them.

  15. Davexxx says:

    This may be either a stupid or obvious question: Could his F1 team provide a saleable asset to help balance his books? If so, is there anyone out there interested in buying a ready-set-up F1 team?

    1. grat says:

      Might be a cheap way for Honda or one of the other manufacturers (Audi, VW.. or something crazy like Pagani) to get back into F1.

  16. Volvo940Turbo says:

    So does this mean no Force India next year?

  17. DonSimón says:

    Oh dear. That is quite serious. Fingers crossed for the tram staff and all that.

  18. Kit says:

    With the warrant out, it means that he won’t be present for the Indian GP.

    But does it mean that the F1 assets could possibly be witheld to recover the money if they actually race there in 2 weeks time?

    1. DonSimón says:

      +1
      Great question. Could they put a padlock in the gear? That would incur a penalty if the team don’t make the grid for the next race creating a self fulfilling prophecy.

    2. MISTER says:

      I am pretty sure the airline company doesn’t own the F1 team. They are different companies. They have different “products” or “services” to sell so there’s no point to be under the same name.

      Bottom line is that they can’t touch the F1 team. Businessmen are not that stupid.
      The worst that could happen to F1 team will be in terms of sponsorship for next year.

  19. AMSG says:

    This guy is worse than Tom Walkinshaw. He could never pay his bills, but still expect you to turn up and work through the night for his press calls of a shiny car.
    Problem for the Force India team, is Sahara is also in trouble now, having been ordered by Indian court to pay back 3 billion in investors money over false investment claims.
    But then India seems all about face and nothing else..

    1. Eric Weinraub says:

      I think your claims about TWR are a bit harsh and wide of the mark. Yes, Arrows struggled from day 1 dating back to its ownership by Jackie Oliver right up to the bitter end. Everyone has choices to make including those employees who make the choice to work on the faith they will be paid later.

      1. AMSG says:

        it was a comment about Tom and not the team if you bothered to read it. The employees never knew the whole truth about what was going on, he was to good at spinning plates. In the end he ran all his businesses down, just to keep the F1 team alive.
        Oh and when I’m called to a customer as a sub contractor, to work through the night to paint and prep tyres and parts for a press call, coz they had got Damon. I don’t expect my terms of business to be ingored and have to wait over 120 days to get paid.

        As for Force India F1 team, they have come a long way since the back of the grid ‘midland’ era. It would be a shame if they slipped back because of funding issues.

  20. Lawrence says:

    Interesting article but what is Force India’s likely fate in the Mallya melee?

  21. surya kumar says:

    The fact that the economist is making is not exactly true. Mallyas Liquor business has given enough in his coffers to come out of this mess. The only thing which I dont understand is why doesnt he shut down the Airline which was once a pride for us. Probably he is attached to it sentimentally as the Airline was a Birthday gift to his Son Siddharth Mallya for his 20th Birthday.

    1. JCA says:

      The loan to the airline should be listed as an asset on their books. If it is written off that is a multi billion dollar hole to fill.

  22. Richard D says:

    I would think that there would be a buyer out there for “Force India” which is running so strongly at the moment. Keeping it in Indian ownership, perhaps Tata might be in the reckoning? If so, we might see the name “Jaguar” come back into F1!

  23. forzaminardi says:

    Hard to feel sorry for the man whose lived the high life and brought these problems on himself largely, it seems, thanks to his own ego. But judged purely on his F1 record, you do have to hand it to the man – he brought Jordan/Midland/Spyker from the back of the field right up to the front. In Mallya’s dream world, Fisi would have had the balls to hold of Kimi and he would have won that Belgian GP back in the day – and Mallya could have sold up as a winner.

    I hope there is some good news soon for the guys his businesses employ in India and the UK.

  24. Sid says:

    I’m an Indian but for one I would want the FIF1 team to be renamed to something that doesn’t include the name of a country. F1 shouldn’t be similar to what A1 was hence I hope Honda or VW buy FIF1 team and rename to something more sensible. I still can’t get around the fact that all other teams on the grid approved this name in the first place. Really F1 is about technology, engineering and innovation and not about countries and tycoons.

    They can have Indian flags all over the car, just like Ferrari have(although not all over the car) but naming it Force India doesn’t make any sense at all, although these are just my personal opionions, no offense intended.

    1. StGeorge says:

      I assume you are not a Red Bull fan then..

    2. Andrew Carter says:

      National pride has always been a large part of F1, from the days that they all ran in national colours. And Force India is not the first team to race under a nations name, with Dan Gurney’s All American Racers in the 60′s.

      Tycoons have always been a large part of F1 as well, look at the guys behind Benetton, Vanwall, BRM, Red Bull, Wolf and no doubt others.

    3. John says:

      Well said Sid!

      You could also add to that the team is based and builds the cars in the UK, uses the British built McLaren gearbox mated to the British built Mercedes engine.

      While on such a topic I find it offensive that, in the case of a win the UK based Red Bull team expects to hear the Austrian anthem and the UK based Mercedes team expects to hear the German anthem.

      Only Lotus as Renault last year bucked the trend by coming back to the British flag.

      1. toleman fan says:

        Re. Lotus – actually, it’s -much- better than that…

        Just since moving to their current factory in Enstone, they’ve won races:

        -as a British team, Benetton, for whom God Save The Queen was played;

        - as an Italian team, still Benetton, for whom the Italian national anthem was played;

        - and as a French team, Renault, for whom the Marseillaise was played.

        All without moving from the same factory. I live in hope that they’ll get to play God Save The Queen again one day.

  25. StGeorge says:

    I assume you are not a Red Bull fan then – given there is just a minor fizzy drinks tycoon behind that team.

    If Force India were winning races by utilising the “Technology, Engineering and Innovation” that inevitably exists in its DNA via its various incarnations, I wonder if you would hold the same view.

    Following your logic practically no one would ever enter F1 as a team owner (for egotistical reasons or otherwise) and Spyker would have been the last incarnation of that team.

  26. Euan says:

    Sensible Hulkenberg getting out of the team now.

  27. Ed H says:

    As harsh as it may sound, I won’t miss this man in F1, the very same man who claimed F1 should be “like 20-20 Cricket”. Too greedy for his own good. However, I hope this isn’t the end of the team as they’re all a good bunch who deserve better in my opinion. Mallya was at least generous with his funding. But as I said earlier, I won’t miss him as he contributed little to the sport in my opinion.

  28. Terry says:

    The original Jordan team has gone through so many millionaire owners. If the team is bought the new name should be “millionaire folly”.

    I don’t know how bankruptcy laws work in India. I have known people who have all their different companies incorporated by themselves in USA. So they can bankrupt one company and move on to the next. With out any damage done to themselves so if the law is the same as the USA.
    Vijay may have a forced retirement from King Fisher. Keep Force India as his expensive toy and still have yacht parties at Monte Carlo.
    Terry

    1. Tay says:

      That’s not how it works here in the colonies…

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