Branson mortgages airline

Sir Richard Branson has mortgaged his stake in Virgin Atlantic to finance an ambitious expansion of his mobile phone business into the United States.

The entrepreneur has used a stake in the airline that he describes as "the jewel in the crown" of his empire as collateral to secure a £50m loan from Lloyds TSB which will be used to provide seed funding for a $1bn (£724m) joint venture between Virgin Mobile and Sprint, the US telecoms group.

Part of the cash raised is likely to be used to expand Virgin's much maligned rail service, which is in the final stages of bidding to run the east coast mainline.

A spokesman for Sir Richard dismissed weekend reports speculating on the state of the finances of Virgin Group, which stretches from colas and financial services to clothing and airlines.

"This a rolling charge used to fund other businesses within the group and is quite normal," Sir Richard's spokesman said. "Almost every major company in the country has one. This charge has been rolling for 2 years."

Virgin Atlantic is Sir Richard's star asset. He sold half of the airline last year for £550m to Singapore Airlines. Rising fuel costs and fierce competition from British Airways have hit the carrier's bottom line. Virgin Atlantic's profits fell from £105m in 1999 to £43m in the spring of last year.

Insiders at Virgin believe the timing of the report of the charge is politically motivated and linked to bidding for the rail franchise to run the east coast line. A decision is expected within the next month.

Virgin Trains is part of a consortium including Stagecoach and Bectel which is trying to wrest the franchise away from Great North Eastern Railways in what appears to be an increasingly acrimonious battle.

The mobile phone foray into the US is likely to cost Virgin about $500m but the group believes it would be money well spent. The North American mobile market is fragmented and under-developed, largely owing to poor network quality and high call costs.

Virgin believes it offers big opportunities to new entrants. Sprint is one of the few carriers with a nationwide network, which Virgin will piggy-back on by becoming a "virtual operator". Sprint is expected to put $500m into the project in return for a 50% share.

The two are also talking to retail chain Best Buy about distributing Virgin phones through its national network of electrical stores. JP Morgan Chase, the investment bank that provided some of the early financing for Virgin Mobile in Britain, is thought to be interested in a similar deal in the US.

The venture will roll out from San Francisco once final documents are signed later this month.

Virgin has a strong brand awareness in the US through its Virgin Megastores and Virgin Atlantic, which flies to 10 cities.

Later this year Virgin expects to sign similar virtual network deals with local partners in Israel, the Netherlands and South Africa. India, China and Hong Kong are other target markets. Virgin Mobile already has operations in Britain, Singapore and Australia. It employs about 1,750 people throughout the world.