Borrowing against Brands !…Interesting,but Risky area opening out !

For Years ,Brand Valuation has been part of my sessions on Valuation of Equity at BSE and Other Forums….so it was with great Interest that I read the Economic Times Front Page atricle today on ‘Cos flash brands to raise cash’

Strapped for cash,Kingfisher Airlines has managed to Borrow from State Bank of India against it’s Brand of ‘Kingfisher Airlines’ which has been valued at Rs 1900 crs,that’s US $ 391 Million at an Exchange Rate of US $ =Rs 48.50 

Interestingly,Kingfisher Airlines has actually included this Brand Value as an Asset in it’s Balance Sheet…If it had not,then the Debt/Equity ratio would have computed higher….However,It’s probably because the Brand  is shown in the Balance Sheet,that PSU Bank,State Bank of India has been convinced to lend against this Asset

‘Kingfisher Airlines’ is a seperate registered Brand than ‘Kingfisher’ for Beer and Wines…Just a thought…if the Airlines defaults ,then the bank could opt to make the Brand it’s property…It would need to monetise this to recover dues…so it will have to sell the Brand !…to a Competitor Airline or a new Airline maybe !?…does the Borrowing Agreement categorically state that this Brand also include all the licenses and permissions  etc ?…what’s the hairline % taken by the Bank for this Asset value when lending?

Now Brand Value,like Intellectual Property Rights and Goodwill is an Intangible Asset.It normally is never reflected in the Accounts,because no real consideration has been paid for it…Thus this makes this Asset Class,riskier to lend against…It may be difficult to liquidate or realise monies for it in case of default

Being an Intangible,Brand Valuation is one of the most subjective and controversial areas in Valuation…Valuing Tangible Assets is a more objective exercise

Will Banks lend against Brand Value even if it is not reflected in the Books as an Asset !?

Clearly,Corporates appear to be running out of Tangible Assets to pledge or offer as Collateral and therefore borrow against…….They are resorting to prop up their  Brand Values for actual Funds leverage

An interesting Valuation and IPO assignment I was involved in recently,threw up this demand from the Promoters when we were working to price the placement and the IPO…”Does not our Brand count for anything ?”…Of course it did…In fact it is one of India’s largest companies in it’s field and has been in existence for over a hundred years !….but potential buyers were reluctant to negotiate a higher valuation that included,both soft and  hard numbers read more

Indians being targeted in Australia….Racism ? Economics ! ?

I daresay,with India growing at 6% + while the world’s leading economies are in recession,there is a growing ‘Protectionist’ sentiment led by even USA’s President Obama,who cries “Buy American!”

In this context, the growing incidents of Indians being physically assaulted in Australia is more a ‘giving vent’ by a few misguided Australians to an increasing  frustrated and a prejudiced mindset that simply is unable to accept this reality of India’s increasing Economic Prosperity and their own Economic Deprivation that’s leading to their Depravity

The perception is that the natives are losing jobs…and jobs that are currently being taken up by Non Australians,especially Indians would have been available for Australians had these guys not have migrated or come into Australia

But Why attack Indian Students !?…Over 90000 Indian Students are actually paying Top Dollar to Australian Universities and Educational Institutions and actually boosting Australia’s Economy….In fact,Australian Representatives of these Institutions are 24/7 passionately wooing Indian Students to study in Australia…It’s lucrative for them

A few Years ago,Australia’s ex PM,John Howard had shown his aggressive and narrow mindset when he had sent out a strong warning to all those who had migrated or wished to migrate to Australia to become Australian in every sense….or just go back to where they come from…He needs to be reminded that they too are not the Original Inhabitants of the Australian Continent…and that they had not come out of their own choice too over 200 years ago from United Kingdom!

Sadly,John Howard finds support in many Australians who think the way he does….they have a closed view of what constitutes ‘Patriotism’……Howard’s message was a veiled threat and had done some damage to the general acceptance that Australia is a progressively democratic nation and is a melting pot of many cultures

And Sadly,as India gets more and more economically prosperous,more and more of such intolerant mindsets will give vent to their feelings…some violently.

I daresay the last India v/s Australia Cricket Series in Australia,is a nasty case in point…the Sydney Test was in India’s grip…Unsporting Umpires and Australian Cricket Players,desperate not to lose led to an Australian Victory…in fact so intense was this behaviour that the Australian PM,Kevin Rudd,had to warn the Australian Captain,Pointing to play the game in the true sporting spirit…The Tour was on the verge of being called off.    read more