LONDON: Necker Island has been Sir Richard Branson’s personal fiefdom for 40 years. But as his Virgin-branded businesses are battered by the coronavirus crisis, the billionaire is turning to his Caribbean hideaway for cash.
Branson wrote to staff Monday saying he plans to “raise as much money against the island as possible” as the pandemic lays waste to industries where Virgin competes, including airlines, hotels and cruises.
While it’s true that Branson has been hit hard by the economic fallout from Covid-19, the move to put his own home on the line is also a result of the lukewarm response to his pleas for government bailouts of Virgin Atlantic Airways Ltd and Virgin Australia Holdings Ltd.
Decades of media-friendly exploits, from attempts at world records to glitzy airline route launches to a bid to establish the world’s first space-tourism company, have become a millstone as states balk at coming to the aid of one of the world’s best-known entrepreneurs.
Colouring that reluctance is Necker Island itself, with the British Virgin Islands retreat portrayed as nothing more than a tax haven by some UK politicians and newspapers. Branson confronted the claim in his letter, saying he bought it at age 29 because of his “love” of the island and not for tax reasons. Necker, which was originally uninhabited, isn’t just a luxury home, he contended, but also is a business that employs 175 people.
A variety of assets have been collateralised to raise funds during the pandemic, including art, diamonds and London homes, though mortgaging a private island would be particularly unusual.
“To use an island to go to a third party to raise money, I haven’t seen that, ” said Farhad Vladi, who rents and sells private islands and estimates Necker was worth more than US$100mil before a hurricane strike in 2017. “But, of course, he’s different.”
Branson, who turns 70 in July, has been a resident there since 2006, receiving guests including Princess Diana and Barack Obama. “He’s very emotionally attached to the island, ” Vladi said. “It’s part of his family.”
The government has asked the airline to provide details of efforts to seek private-sector cash and hired Morgan Stanley to assess its viability and economic contribution, according to people familiar with the matter. Virgin has engaged investment bank Houlihan Lokey Inc to show that it’s exploring all funding options.Branson has committed to injecting US$250mil to support his companies, with a large share going to Virgin Atlantic. Securing much more cash, though, may be challenging.
His net worth, estimated at more than US$5bil by the Bloomberg Billionaires Index, has fallen by US$2bil since mid-February. Moreover, the web of investments that comprise Virgin Group makes it difficult to get access to that wealth at a time when many of his businesses have seen demand collapse.
Virgin Group, based like its founder in the British Virgin Islands, doesn’t report consolidated results. Branson last month also moved his US$1.8bil stake in space venture Virgin Galactic Holdings Inc – his most valuable listed business – to the archipelago as part of an internal reorganisation.
Branson said in his letter that he doesn’t have much cash on hand, citing a record of extracting little “significant” profit from Virgin and instead constantly plowing proceeds into new businesses. That’s meant funding a run of comparative duds such as Virgin Cola, as well as successes such as the space arm.
Rebecca Gooch, director of research at Campden Wealth, said, “While reinvesting wealth back into a business can be the best thing for the business, it can also lead to personal liquidity challenges when facing an unprecedented crisis like the coronavirus.”
Some of the Englishman’s bets have sharpened the cash crunch. In particular, a rebound in Virgin Atlantic’s fortunes last year prompted him to scrap the sale of a 30% stake to Air France-KLM in favour of retaining control.
Branson, who had said the deal was vital to allow Virgin Atlantic to reach its full potential, should perhaps have heeded his own warnings about the precarious nature of the airline business.
“If you want to be a millionaire, start with a billion dollars and launch a new airline, ” he once said, only half jokingly. — Bloomberg
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