Airline takes off but record label flops

By Jock Anderson

Friday 14th July 2000

Sir Richard Branson

While arranging for Virgin Airlines to invade the Australian market Sir Richard Branson is fending off disappointed New Zealand investors in his struggling record label.

A handful of this country's wealthiest business people forked out a minimum of $1 million each only to discover earlier this year their "donation" to Sir Richard's $240 million V2 music venture was worth zilch.

Investors were told there was no means of valuing their investment, partly because it was a private -equity placement and partly because of "lack of liquidity." V2 lost $110 million in the year to June 1998.

Virgin Blue airline, which Sir Richard expects to run at a loss for at least three years, is due to take off in Australia in August.

Sir Richard has yet again managed to appease his creditors by agreeing to a refinancing of V2, the cash-strapped label hanging its fortunes on Tom Jones and pop band Stereophonics.

The Financial Times reported Sir Richard had secured an agreement with V2 bondholders, led by Morgan Stanley Dean Witter, to swap their loans for a big equity stake, thus reducing Sir Richard's stake in the business to 65.5%.

With the agreement of bondholders, £73 million of the debt will be swapped for loan notes convertible into a 25% equity stake in V2. The remaining £20 million of debt is to be repaid by Sir Richard, who promised to invest a further £45 million of working capital into the company.

Despite fears his privately owned empire was strapped for cash, Sir Richard has pulled off a string of deals aimed at bringing in new money.

Attempts to establish Virgin's true financial position have foundered on the company's complex structure, controlled by Sir Richard's offshore family trusts and including more than 200 separate companies.

Sir Richard last week said he may consider a partial sell-down of cut-price Virgin Blue after three years' operation.

Last month he admitted he was very worried about his Virgin Atlantic airline. Virgin Atlantic, 49% of which Sir Richard sold to Singapore Airlines for £400 million, is being squeezed in moves by British and American officials to open up the skies across the north Atlantic.

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