It’s not surprising that the words “Hong Kong Stock Exchange” are an anathema to many Blues fans.
Many blame the HKSE listing for the lack of investment in the club and for lack of desire from BSH to sell it on to another party. The thought that HKSE regulations are to blame for a lack of progress on the sale is somewhat galling.
The HKSE rules are difficult to understand and it’s not surprising there are many misinterpretations on social media.
With this in mind I’ve put together this piece to show how things happen, using past disposals by HKSE listed companies to demonstrate the process.
If you would rather hear / watch me talk about this than read it, please take a look at the “Meeting with the Mayor IV” podcast I recorded with Mark Watson which was uploaded on Wednesday May 11.
The Championship Club
People might find this hard to believe, but Blues are not the first club to be sold by a Hong Kong listed company.
Back in 2020, International Entertainment Corporation sold Wigan to Next Leader in what proved to be a very controversial deal as the Latics were immediately dumped into administration.
If we can put the horror show of a new buyer doing that to a club out of our mind, we can look at the process to understand what needs to happen with regards to Blues and why it’s so important that we get an announcement soon.
The first announcement that IEC were looking to sell Wigan was filed back on November 18, 2019.
That announcement confirmed to shareholders of IEC that they were in talks to sell Wigan Athletic, and that they had signed a Memorandum of Understanding.
With this signed, Next Leader were doing due diligence ahead of a possible takeover. However, nothing had been finalised and further info was to be announced when it had.
What this means is that IEC and Next Leader had made an outline agreement of what would happen, so that Next Leader could properly examine the books before they confirmed their bid.
Compare this to what we’ve been told about the “Harris Bid” here in the UK. John Percy’s article in the Telegraph on Monday included the following two paragraphs.
A British businessman has been granted exclusivity over a purchase of the Championship club and is conducting due diligence, with sources hopeful of a deal being concluded within the next four weeks.
It is understood the potential UK-based buyer is working with financial expert Keith Harris, who has been appointed by Birmingham’s current ownership, Birmingham Sports Holdings Ltd, to help complete a sale.
I’ve added my own emphasis to key words here, to help people understand the point I’m driving at.
According to Percy, there has been an agreement between BSH and the businessman involved in the “Harris Bid” to rule all other bidders out of buying currently (which is what exclusivity is), so that this businessman can conduct due diligence.
The article also confirms that Keith Harris is working on behalf of BSH, not the bidder.
In short, this situation is very much the same as the one in the announcement above.
Therefore, as per rule 13.09, BSH must announce that they have reached that part in negotiations to prevent a false market in the shares of BSH.
I have written to BSH to ask why they have not made a statement after this information has been published on a national newspaper website.
As yet, I have yet to receive a response and as of the time of writing this on Wednesday evening, nothing has been confirmed to the HKSE either.
This leads me to believe one of two things is currently the case. Either
- BSH are incompetent and are not following the rules, or
- The bidder has not been granted exclusivity and/or is not conducting due diligence.
I’m inclined to believe it’s the first option, because even if the second option was true then BSH would have to deny it in an announcement to prevent a false market.
It wasn’t until February 14, 2020 that IEC confirmed the terms of the deal that they had reached with Next Leader.
They published an 18 page announcement outlining terms, the reasons for the deal along with some info on the buyer.
The last page of the statement confirms that IEC will prepare a circular for shareholders confirming all details along with a notice convening an Extraordinary General Meeting (EGM). They then advise that they expect to send that out by March 6, 2020.
If the British businessman involved in the “Harris Bid” and BSH come to an agreement on the sale of the club, then BSH would have to make a similar announcement to the stock exchange to set the ball rolling for things to happen.
However, the path from announcement to completion isn’t necessarily an easy one.
Despite IEC promising to send the circular out by March 6 there were a couple of hiccups and it wasn’t until May 29 that the deal was completed; some 3.5 months after the initial sale and purchase was agreed.
These hiccups were caused by IEC not being ready to send out all the information required to shareholders. It can be a long process, and sometimes extra time is needed to get it all signed off.
It’s also worth bearing in mind that this sale wasn’t as big a deal for IEC as the sale of BCFC will be for BSH.
The IEC sale of Wigan Athletic was only a “substantial disposal”, whereas any deal for all of BCFC will constitute a “very substantial disposal” for BSH.
With this in mind, I searched for another deal which was the same size to try and make understand the process further.
Art Group Holdings
In April 2021, a HK listed company called Art Group Holdings announced to the HKSE that it had made a sale and purchase agreement with a purchaser for a subsidiary which constituted a very substantial disposal.
The details are eerily similar to BSH – Art Group only owned 75% of the subsidiary just as BSH owns 75% of Birmingham City; and selling the subsidiary was going to remove nearly of the revenue that Art Group generated in the same way selling BCFC will strip BSH of nearly all of its turnover.
However, despite all of these complications Art Group managed to sort out a deal quickly and just under two months later it confirmed to the HKSE that the deal was done.
Before people get excited about how BSH could get a deal done for the sale of BCFC as quickly as that, there was a catch.
In the same announcement as the one where Art Group confirmed they were selling, they also announced that they were making a “very substantial acquisition”.
In other words, the reason the deal went through so quickly for Art Group was because they had something to replace the company they were selling.
The implication here is that for BSH to sell the whole of BCFC quickly, they need to come up with a company to bring into the BSH group that can replace BCFC as the club is being sold.
This is problematic for BSH right now.
While there are undoubtedly many investments connected to people like the elusive Mr King aka Wang Yaohui, it’s become very difficult to get these past the HKSE for varying reasons.
Investments in Cambodia are seen as a political no-no right now, and losses elsewhere mean that it’s entirely possible Wang hasn’t got something he can quickly drop into BSH without it being a huge mess of paperwork.
In turn, this potentially puts BSH into a tricky situation.
Have things got so bad now that cutting and running with the money they get from the sale of BCFC is enough to accept losing the listing?
Or can they pull something out of the bag to hold it on without there being too many questions being asked?
I’ll be honest and will admit that I don’t know the answer to this question; I suspect no one else does outside a few people at the top of BSH.
It’s a question that will need to be answered soon if the club is to be sold, because it is very unlikely the HKSE will accept BSH as it stands, minus BCFC.
The key thing I want people to take from this is that right now, we are at the mercy of BSH’s competence.
No pressure at this end will do anything to force through a sale.
It’s down to BSH to convince the HKSE that the sale of the club will comply with regulations, and it’s down to BSH to follow the protocols to ensure the sale process is expedited in a smooth and efficient manner.
While some people have offered a solution of just ignoring the rules and letting the HKSE punish BSH after, I think this is dreadfully myopic.
For one, any sale without following the rules is going to be invalid in the eyes of the law and could easily be challenged in court, making for a protracted mess which doesn’t do the club any favours.
Secondly, if a bidder is looking to use underhand tactics to do something like that, for me it’s a red flag on how good those owners will be for BCFC.
I accept I keep banging on about this, but the sooner we get some confirmation from BSH about what is happening, the better.
If they can at least confirm one bidder has exclusivity then we know the process is going ahead and it’s almost certainly just a matter of time before the club is sold.
Until then doubts will always play a role and we will continue to hear from desperate outsiders that they can do the deal better.