BSH: Credit Crunch

While Blues secured their Championship status for another year by winning away at Rotherham on Monday, Birmingham Sports Holdings have been doing what it can to secure its own financial status on the Hong Kong stock exchange.

Hong Kong Stock Exchange

On Thursday BSH confirmed to the stock exchange the completion of the recent rights issue held by the company. You can read the full statement at this link.

The rights issue was launched at the end of February with the intent of bringing in nearly £30million in fresh funding for the company.

The rights issue allowed existing shareholders to buy new shares in the company thus creating new investment.

Does this mean Blues get loads to spend this summer?

Sadly, no it doesn’t.

To fund spending at Birmingham City, BSH have taken loans from various companies which it has then passed to Birmingham City.

At the time of the February announcement, BSH owed around £40.4million at varying interest rates to various people.

Paul Suen’s Trillion Trophy Asia have given BSH a revolving loan facility of HK$250million, while the company borrowed a further HK$150million in May 2018 from one unnamed third party and a further HK$250million from another unnamed third party.

This means that the “gearing” – the amount of money borrowed against the value of the company – was poor and the company needed to pay some money back.

80% of what has been raised by the rights issue has been earmarked for this task, while 20% of what was raised is to be used as “working capital for the group”.

Why does this mean a credit crunch?

As a listed company, BSH can bring in capital in two ways.

It can either borrow money, or it can sell shares in itself to new investors.

Although loans will have been paid off by this rights issue, giving the company some breathing space and more of a credit line, borrowing money on that route will potentially just make the gearing bad again.

Another issue of shares is even more problematic.

The Stock Exchange rules say that as a listed company, BSH must have at least 25% of itself owned by “the general public” – ie minority shareholders with no connection to the large shareholders. This is called the “float”.

The float is dangerously low – 25.14% – and it’s possible it’s theoretically lower than that.

Issuing shares would lower that level further and would result in BSH being potentially censured for too many shares being concentrated in too few hands.

Likewise, the percentages owned by the large shareholders in a careful situation where Trillion Trophy Asia are still the largest shareholders – but only just.

The Stock Exchange have told Paul Suen Cho Hung (who owns TTA) that he cannot reduce his shareholdings further until the company starts provably making money.

The corollary of that is that Blues have to be less expensive to run – meaning that it’s not just the EFL who are insisting on profitability and sustainability.

I believe Garry Monk is setting expectations for transfer business low because he knows that even without the EFL breathing down the club’s neck – the supply of cash from Hong Kong and China is going to start drying up.

How does this change the ownership situation?

Paul Suen is still the largest shareholder in BSH – but only just. TTA now own 30.63% of the company while Ever Depot, which is owned by Chinese-born Cambodian Vong Pech is at 25.63% and Dragon Villa which is owned by Lei Sutong is at 18.60%.

As mentioned before on this site, both Ever Depot and Dragon Villa have links to Wang Yaohui (Mr King).

It’s my belief Suen isn’t allowed to go below 30% while the other companies can’t go above that threshold.

What are the solutions?

One potential solution to bring some money into the company would be to sell a stake in the UK parent of the club, Birmingham City plc.

At this moment, BSH owns around 97% of BC plc, and it theoretically could sell a stake in that to an unconnected third party to bring in some cash.

There is also the possibility that BCFC could sell St Andrew’s to TTA or a third-party company to bring in some money that way – something I would naturally be opposed to.

One thing is for sure to me – that due to the unique ownership situation at Blues in comparison to the rest of the Championship, Blues have to be more tightly run going forward to not fall foul of one authority or another.

One thought on “BSH: Credit Crunch”

Leave a Reply