Water, water, everywhere, Nor any drop to drink.
(Bloomberg Opinion) -- Richard Branson, the billionaire entrepreneur and occasional poet, spends much of his time on his private island, Necker, indulging a passion for kite surfing. And he’s risked life and limb crossing the Atlantic and Pacific oceans in a hot-air balloon. But it’s only in the past few days that the above line from Samuel Taylor Coleridge’s “Rime of the Ancient Mariner” will have begun to resonate as regards his financial affairs.
On Monday he penned an extraordinary public letter appealing to the British government to provide an emergency loan to prevent the collapse of transatlantic carrier Virgin Atlantic Airways Ltd., which he owns jointly along with Delta Air Lines Inc. of the U.S.
Travel restrictions to curb the new coronavirus have walloped Branson’s travel and leisure holdings. He’s already spent $250 million to support his various Virgin Group portfolio companies, but most of his $5.9 billion net worth isn’t “sitting as cash in a bank account ready to withdraw,” Branson said. That has forced him to consider the drastic step of mortgaging his beloved Caribbean island home, which doubles as an ultra-expensive retreat.
On one level Branson’s predicament is simple, and pretty common for someone about to turn 70: He’s asset rich, and cash poor. But considering his pretty relaxed approach to business, Branson’s financial arrangements — spanning his British Virgin Islands tax residency and a portfolio of often debt-laden holdings — are as complicated as they come.
This, alongside the unappealing politics of being seen to bail out a billionaire, makes governments wary of offering a helping hand. Another of his investments, Virgin Australia Holdings Ltd., collapsed into administration this week, having failed to secure a lifeline from Canberra. British regional airline Flybe, in which Virgin held a minority stake, went bust last month after Boris Johnson’s government declined to provide further assistance.
Branson has plenty of financial capital but he appears to have very little of the political kind. Even now that he’s put the keys to the family home on the table, this probably won’t change. Helped by his gift for self-publicity, many Britons are as familiar with Branson’s business career as they are with their own personal finances. But the consequence of stamping the Virgin name on everything, often in return for no more than a licensing fee, is that the public thinks he owns half of the economy and is in no need of a handout.
In reality, Branson has exited businesses such as the broadband provider Virgin Media (now owned by Liberty Global) and he owns only a small piece of high-profile companies like Virgin Money UK Plc, gym chain Virgin Active and Virgin Trains USA (operator of a high-speed Florida rail line).
Branson’s talent has attracted wealthy partners, willing to invest alongside him in return for a share of the profits. One of the more unfortunately timed of these was a fleet of Virgin-branded cruise ships, co-funded by Bain Capital and the Singapore sovereign fund GIC Pte., due to start sailing this year.
Because Branson doesn’t own many Virgin Group companies outright, he can’t easily switch cash between one investment and another. And having multiple owners complicates decisions on who should bail the business out when trouble strikes. Delta and the U.S. government haven’t offered publicly to help Virgin Atlantic, for example. At Virgin Australia the buck stopped with Etihad Airways, Singapore Airlines and other foreign airline investors whose holdings were larger than Branson’s 10% stake.
Some of Branson’s businesses were struggling before the coronavirus struck. Virgin Atlantic lost money in the last two years for which there are published accounts. It carries a lot of debt, rents many of its planes and funded its daily operations with cash from selling tickets in advance. Passengers whose flights have been cancelled are demanding refunds. Even the company’s valuable Heathrow takeoff slots have been used as collateral.
Lately Branson has reinvested profits and dividends from his various ventures into the cruise ships venture, a chain of American hotels and, above all, his space-travel company Virgin Galactic Holdings Inc. But with millions of people fretting about how to make their next mortgage or car payment, even the jobs created by these new Virgin ventures are no guarantee of winning taxpayer support. His Virgin Galactic stake is worth almost $2 billion by my calculation.(1) Monetizing it might not be easy(2) but as collateral it’s worth much more than Necker.
In making his case for a bailout, Branson cited the detrimental impact on competition if his airlines were allowed to fail. He’d be the first to admit, though, that failure is part of being an entrepreneur. If he can’t persuade commercial backers to provide loans, then governments too must drive a hard bargain in exchange for assistance.
Unlike Coleridge’s sailor, the similarly gray-bearded Branson might have some drinkable financial water. For now, it happens to be tied up in spaceships.
(1) Based on the current share price and adjusting for Aabar's ownership interest.
(2) Details of the shareholder lockups are in this SEC filing.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Chris Bryant is a Bloomberg Opinion columnist covering industrial companies. He previously worked for the Financial Times.
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