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RETROFIT by Sandeep Bamzai: Hedonism & Hubris -- winner Mallya loses it all

THE SCENE AT A posh Goa resort sometime in late October last year was intriguing. Holidaying with the family at the same resort, this writer with a newshound's nose suddenly found frenetic activity at sleepy hollow. 

An advance team arrived at the hotel, all corporate types as they got down to negotiating with the hotel management to secure a bulk of the plush resort's rooms. They got down to hammering out details of the number of rooms, charters from different places, airport transfers, food and beverage menus, song and dance routines including acts by Enrique Iglesias. The team was brusque as it sneered down on the hotel management team. The event was Vijay Mallya's 60th birthday celebrations in December. It was clearly business as usual for VJM, as he is popularly called. 

Media had no clue of the impending storm. For that matter, I doubt even if Mallya himself sensed what was to come in the new year. Then in early February, at the IPL auction in Bangalore, the liquor baron was very much present representing Royal Challengers, sporting a Mohawk haircut and bidding for players. Long years after his pet hobby horse -- Kingfisher Airlines -- had gone bust and shareholders, banks, employees, media had raged against his abominable style of conducting business, nothing seemed to matter to the King of Splurge. His hedonistic  lifestyle remained as large as ever.

A day after the IPL auction, Mallya confirmed that he had bought the Barbados franchise (Tridents) for $2 million in the Caribbean Premier League earlier in January. Adding salt to the open wounds of his detractors, he then went on to sponsor the Kingfisher Ultra Indian Derby at Mumbai's Mahalaxmi race course for its highest ever prize money of Rs 3.5 crore. For good measure, Mallya himself gave away the winner's trophy on February 8, two days after the IPL auction. Incidentally, the Derby winner -- Desert God was bred at Kunigal stud farm, owned by none other than sponsor Vijay Mallya himself. 

Then in late February came the kicker. In one final swoop, the final settlement with Diageo left Mallya without his sporting interests. One of the pre-eminent patrons and sponsors of sport in India has thus been lost forever. From Formula One to domestic football, from race horses to Derby sponsorship, from Royal Challengers in IPL to Barbados Tridents now in the CPL, Mallya, despite his financial travails was personally present at all the events. In fact, Mallya was himself the very face of both RCB in IPL and Sahara India Force One in Formula one. Passionate about both, he failed to win either during his many years of association with both. 

With the $75 million golden handshake, Mallya lost control of his IPL franchise which he had bought for $111.6 million in 2008. In his statement to the media, Mallya said, "On the sporting front, I will now be the Chief Mentor of the Royal Challengers Bangalore. I have been passionate about this team since inception and am determined to do whatever I can to win the IPL trophy.  I am glad that my son, Sidhartha, will remain as a Director (for two years) as he is equally passionate about RCB." 

While the statement kept quiet about Sahara Force India, on Tuesday, Mallya, in a series of tweets ahead of the Australian Grand Prix in Melbourne on March 20, showed that he is very much the F1 team boss, disputing speculation that he would have to exit this too. Scotching all rumours that he has lost control over his 42.5 per cent stake in the F1 team since that shareholding was held as collateral against a $135m (£97m) loan lent by Diageo and Standard Chartered to Force India parent company 

Watson Ltd, a Force India spokesperson recently told Grand Prix Times, "There is no change to VJM's ownership of the team. Vijay Mallya is team principal and managing director."

Mallya himself told PTI that the deal to step down at USL has no bearing on his position at Force India. "Nothing has changed at Force India," he said. "If you take a loan, you give some shares as security. That does not mean security has changed. Diageo may have security over my shares but ownership has not changed. I don't know why everybody is making a deal about it. Formula One has nothing to do with my stepping down from United Spirits. They are not connected at all." And this appears to be confirmed by his tweets on Tuesday from Oz presumably. Equally, Mallya has also invested heavily in football through Mohun Bagan AC and East Bengal FC . Mallya’s controlling interesting in these two regional clubs also remains under a cloud at this stage.

Mallya was always enamoured of racing. As a school boy he rode a jeep up the steps of La Martinere, Calcutta and was a racing regular at both Barrackpore and Sholavaram circuits. A young Vijay Mallya even imported a Formula One car and drove in one of the races at Sholavaram. This writer himself has seen Mallya zipping around on the Barrackpore circuit in the early 1980s. Four-wheel cars and two-legged horses were always his passion. United Racing and Bloodstock Breeders Ltd was formed by Mallya in 1988 to bring under a single banner his rapidly growing interests in racing and breeding. Having owned and raced top class fillies, including Danish Lad in 1976, it was a natural progression for him to breed horses and he achieved this by taking over the legendary Kunigal Stud Farm outside Bangalore in 1992. 

United Racing & Bloodstock Breeders Ltd was formed by Dr. Vijay Mallya in the year 1988 to bring under a single banner his rapidly growing interests in Racing & arm located 70km from his corporate head quarters at Bangalore. 

On March 1, Mallya, unperturbed, attended parliament as a second time Rajya Sabha member. The very next day he turned to vapour. Leaving for London with a lady friend and seven large bags. He had been forewarned and hence was forearmed.

Fade to black.

In its existence, Kingfisher Airlines (KFA) never ever made a quarterly profit. Mallya's obsessive dream of running a spiffy airline which would rival Richard Branson's Virgin Atlantic and would be better than India's premier airline of the time -- Jet Airways --  helped him lose it all. 

Toronto-based Veritas Investment Research, in its report on the airline in September 2011 had said: “The convoluted logic of debt restructuring, via acquisition of CCPS (compulsorily convertible preference shares) of an organisation that doesn’t have the cash to meet its obligations, which were subsequently converted into ordinary shares of Kingfisher at a premium of 61.6 per cent speaks eloquently to the financial shenanigans underway at the banks and Kingfisher Airlines.”

Herein lies the rub. While Mallya may well be a wilful defaulter and has had to flee the country, what were the nation's administrators and investigative agencies doing all these years? This history of default is well documented and this writer took the lead in India Today of writing stories which threw into stark relief this shining monument of  cronyism. But nobody cared and life went on. From F1 to IPL, Mallya was present in India, from parliament to his birthday bashes, he was very much available for one and all to catch. Smear campaigns notwithstanding, it is pointless hyperventilating now. Chidiya chug gayee khet.

Imagine, lenders first gave loans, then converted ₹650 crore ($96 million) debt into preference shares on the assurance from the airline that it will list on the Luxembourg Stock Exchange by selling global depository receipts. And pigs would fly. Mint Street-based regulator RBI greenlit a remarkable bailout package which forced the banks to convert debt amounting to Rs 1,355 crore into share capital at a premium of 61.6 per cent  at ₹64.68 (prevailing price was at ₹39.40), the closing price of the underlying common share. This translated into the hapless bank already saddled with KFA debt being awarded dud shares in the airline. The 17-bank consortium ended up owning 23.2 per cent stake in the stressed carrier. This was the theatre of the absurd. Lenders had now become shareholders and creditors. 

Veritas Investment Research in its report also red-flagged the unpaid statutory dues amounting to Rs 425 crore for 2010-11 at that point in time. According to the auditors, undisputed  amounts payable in respect of employees state insurance were Rs 75 lakh, towards provident fund Rs 43.80 lakh,  tax deducted at source of Rs 422.97 crore, service tax was Rs 1.04 crore, and professional tax was Rs 2.46 lakh. He escaped the dragnet despite this being a criminal offence. Between 2008 and 2011, he failed to pay these statutory dues and even fringe benefit tax of Rs 4.5 crore remained unpaid for 2008-09. Veritas report stated:  “Kingfisher’s disclosure is poor, accounting policies capricious, balance sheet is in duress, free cash flows are absent, collateral provided to financial institutions by its holding company insufficient and the actual liabilities on Kingfisher’s books are understated.” Duped and defrauded wilfully by Mallya yes, but what about the bank chairmen and their political masters in the finance ministry? Who were present in the ALCOs (asset-liability committees when these loans were first given and then recast) is what needs to be investigated?

Vijay Mallya finally tripped because he became a victim of his own hype, his in-your-face imagery diminishing whatever trust one had for him. If he had lied low and allowed this drama to subside, then he too would have melted into history like so many others. Rogue stockbroker Harshad Mehta fell prey to his red Toyota Lexus just as Mallya's partying and love for ostentation and bling brought him into disrepute.  What is playing out five years later is nothing but a sham, for all the players involved kept a lid on the case and this collusive connivance allowed Mallya a ticket on Jet Airways to the UK on March 2.

Ironical that Mallya had to flee using an airline which he had sworn to destroy.

(Sandeep Bamzai is a sports junkie, editor & author. Currently a Visiting Fellow at ORF.  Disclaimer: The views expressed are solely those of the author in his private capacity and do not in any way represent the views of The Fan Garage)

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