20/11/2011
NEWS STORY
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Formula One's boss Bernie Ecclestone has said he has been advised to float the sport on the Singapore stock exchange. Pitpass' business editor Christian Sylt interviewed Ecclestone earlier this week, not about the United States Grand Prix but about the future of the sport. Ecclestone's disclosure could prove to be the biggest insight this year into the direction in which F1 is heading.
Writing in today's Telegraph, Sylt quotes Ecclestone saying "if I wanted to dispose of the company today I would float it in Singapore or Hong Kong." Crucially, he adds it has been suggested to him that if CVC wants to exit F1 "it would be better to float the company in Singapore than sell it." For the moment, Sylt's lips are firmly sealed about who suggested this to Ecclestone but there is little doubt that it makes sense.
There were several attempts to float F1 on the London Stock Exchange in the late 1990s but they failed due to an anti-competition investigation by the European Commission. After that, Ecclestone predicted F1 would never float whilst he is its chief executive however he now says that the accelerating interest in the sport in Asia is too hard to ignore.
A new race in Asia has been added to F1's calendar in each of the past four years. The inaugural Singapore Grand Prix was in 2008 and this was followed by races in Abu Dhabi, South Korea and India which debuted in October. Last year was the first time in F1's history that there were as many races in Asia as in F1's heartland of Europe.
As the recent flotation of the Williams team has shown, simply because a business is based in the UK, there is no need for it to float there. Sylt says that we should not expect an F1 flotation for a good few years but, as Pitpass has reported, it seems the sport's majority owner, private equity firm CVC, has got to exit by 2018. CVC is understood to be analysing its exit options so it is easy to understand why Ecclestone has been receiving suggestions about this.
CVC bought F1 for £1.1bn in 2006 and according to the investment prospectus of the fund it used to acquire the sport, its typical investment holding period is three to five years. It is already well beyond this window and earlier this year it was reported that CVC had conducted a strategic review of F1 for a potential sale, flotation or debt refinancing.
Revenues of F1's Luxembourg-based parent company Delta 2 increased 2% to £696m in 2010. Delta Topco, its ultimate holding company, doesn't file accounts as it is based in Jersey, but, according to F1's industry monitor Formula Money the company has made net profits of £760m over the past five years. CVC owns 63.4% of the business with the second-largest shareholder, Lehman Brothers, holding 15.3%. Ecclestone has a 5.3% share and last year said he believes F1 is worth "six or seven billion dollars" which gives an indication of the value of a possible flotation.
CVC is not likely to exit F1 before judgement is given next year in the bribery trial currently taking place in Munich. Gerhard Gribkowsky, former chief risk officer of German bank BayernLB, has been charged with receiving a £27.5m bribe to grease the wheels of the sale of F1 to CVC.
Ecclestone has admitted that the money was paid by him and his family trust but neither he nor CVC has been charged. He adds that CVC is not concerned after an internal investigation cleared it and F1 of any wrongdoing. "CVC has investigated the Gribkowsky situation. They did an internal enquiry," he says.
The bribery trial began in October but it has not dented F1's financial outlook. CVC bought the sport with a £1.8bn loan from the Royal Bank of Scotland and Lehman Brothers and the right to repayment of this was later sold to private investors. The lower the price investors are prepared to pay, the higher the perceived risk that F1 will fail. This is because there is no point in paying full price for the right to repayment of a loan if it isn't likely that it will be repaid in full.
According to Markit Group, which charts debt pricing, the F1 loan price increased from 90p in the Pound at the end of September to 94.75p one month later so it actually got a boost when the bribery trial began. Last year F1 paid off £214m of its loans and Ecclestone has said he believes F1 will be debt free by the end of 2014. This will increase its value making an exit even more likely.