BSH: The (Partial) Sale of BCFC

The full 29 page PDF announcement can be viewed in full at this link.

What is the essence of the deal?

In return for a cash lump sum of £5.4million, Vong Pech will get 21.64% of Birmingham City PLC and 25% of Birmingham City FC. This, in addition to the 25.63% stake he holds in the company via another BVI vehicle, Ever Depot, will make Vong Pech the largest shareholder in the club above Paul Suen Cho Hung.

BCFC owe a lot of money to BSH – £110.6M as of 31 August 2020, so as part of the deal 21.64% of that debt will be owed to Vong Pech instead – about £23.9M. Should Blues borrow more money by the time deal is approved by shareholders, Vong Pech will have to stump up some extra cash in proportion to that debt.

As part of the deal, Vong Pech has agreed to a few extra details.

Firstly, he will be allowed to appoint one of the five directors to the BCFC board. My opinion is that as Jerry Yiu Chun Kong is Paul Suen’s sole man on the BCFC board, he’ll probably be the one to make way for Vong Pech’s pick.

Secondly, a strategic committee will be set up which will advise the BCFC board on a number of things from transfers and manager appointments to marketing and ticket pricing. This committee will consist of three people, of whom Vong Pech will choose two. These have already been named – a Shanghai banker by the name of Zhou Desheng, along with long time Vice President of the club, Mike Wiseman.

Thirdly, a profit and loss sharing agreement has been put in place. The broad strokes of that are that if the Blues lose money in the next three years, then Vong Pech has to pay compensation to BSH for their share of the loss (75%) within 30 days of BSH demanding it. This figure is capped at £25M per season.

However, if the club goes up to the Premier League, then BSH will pay Vong Pech an annual bonus equivalent to 75% of the net profit made, to a maximum of £30M per year.

How does selling the loan work?

With the club being valued at just £22M, and with a huge loan of £110.6M to BSH hanging around the club’s metaphorical neck, there had to be a bit of a sweetener in the deal to make this right for Vong Pech.

What BSH have agreed to is to hive off a proportion of the money which is owed to BSH equivalent to the size of the stake Vong Pech is buying.

This means that when the deal is done, the club will owe BSH £86.7M and Vong Pech £23.9M directly.

This scares me, as we only have to look at Wigan recently to see how a new owner can come in and demand a loan to be paid off instantly. However, I don’t think that could happen in the short term as it would affect Vong Pech’s shareholding in BSH negatively.

I’m also curious as to how it will it affect things going forwards. At this moment in time, BSH loans money to BCFC for cashflow and things like that. With a new investor, will Blues go to Vong Pech instead for the money?

Who is Vong Pech anyway? Is he minted?

I wrote a bit about Vong Pech back in 2018, and I’ll be honest, I don’t know much more about him since then.

Vong Pech is the owner of Graticity Real Estate Development Ltd, the Cambodian company that runs a section of the One Park development in Phnom Penh for BSH.

While Vong Pech holds a Cambodian passport, I can confirm that he was born in China. He is listed as a director of a large number of companies in Cambodia, with some having connections to an individual named Wan Sokha, which I believe is an alias of the elusive Mr King, Wang Yaohui. There are also connections to people connected to the Cambodian Government such as Sopheap Choeung. I made an episode of my vlog where I’ve talked about those connections, which you can watch at the above link.

Due to the paucity of information about Vong Pech, it’s incredibly difficult to know how much of a personal fortune he has. However, it’s my belief that Vong Pech is a placeman for Mr King, and as such any money that is put into the business by Vong Pech ultimately will have come from King.

What is this strategic committee about?

The section of the announcement dealing with the strategic committee is one that intrigues me.

On the face of it, it seems a good idea; a group of people who look at big picture issues and offer solutions, based on their knowledge and expertise.

On the one hand, the proposed appointment of Shanghai-based banker Zhou Desheng doesn’t fill me with joy as I feel Blues have already struggled enough with non-football people making suggestions about the football side of things.

On the other hand, the proposed appointment to the committee of Mike Wiseman is one that shows that maybe some thought has gone into this idea. The Wiseman family has been involved in Birmingham City for a very, very long time and I think Mike Wiseman would have some idea of what is required on the football side.

Of course, this strategic committee could be nothing more than window dressing; their job is to advise the BCFC board and it might be that the BCFC board pay little attention to this advice.

What about St Andrew’s?

This deal seemingly makes the sale and lease back of St Andrew’s complicated, and part of the deal shortens the lease to the club down to three years, ending on June 30, 2023.

While this shortens the amount of money that the club have to pay to Birmingham City Stadium Ltd for the ground, it does make me concerned what will happen to the club once the lease expires; if it will be renewed and at what cost.

I’ve long been against the idea of sale and leasebacks to get around FFP and this is why; it separates the ownership of the club from the ground and causes issues. Up at Sheffield Wednesday, Dejphon Chansiri has taken a loan out against Hillsborough which means if he defaults, the club gets turfed out.

How does this affect any sale of the club?

For Vong Pech, this could be the start of the full purchase of the club. While any sale of the club would have to satisfy the authorities, there are provisions in this agreement for further slices to be sold to him.

For anyone else, it makes things about 100 times more difficult because now there are two separate companies to negotiate with to buy the whole club, in addition to dealing with all the regulatory foofaraw.

What I think this agreement has done is to try to get the transfer of ownership of the club going from Paul Suen to Mr King, upsetting as few regulatory applecarts as possible.

So what happens next?

While BSH and Vong Pech have agreed terms, because of the size of the transaction the deal has to be approved by shareholders at an EGM; with Vong Pech unable to vote his BSH shares.

BSH intend to send the circular for the EGM before November 6, 2020 which I think would mean the aim would be to get this done by the end of that month. Of course, circulars can be delayed – so there is no banking on how long this will take.

As a shareholder in BSH myself, I’ll be interested to read the full report of the independent non-executive directors into this transaction, and although it’s unlikely I’ll be able to attend the EGM myself due to the coronavirus, I will appoint a proxy to ask questions should the need arise.