BSH: Accounts Analysis June 2022

Birmingham Sports Holdings announced their latest accounts to the Hong Kong Stock Exchange on Friday afternoon. The accounts are for the year ending 30 June 2022 and correspond to the 2021/2022 football season for Blues. While the company once again made a loss, the amount BSH lost has been reduced, which will surely please investors.

Birmingham City Accounts

The accounts can be viewed online at this link.

As I’m not an accountant, I’ve tried to keep my observations in this piece to some of the headline figures to try to get a better understanding of what is going on at both Birmingham City and its Hong Kong parent.

An Expensive Year for Vong Pech

One of the chief reasons that Birmingham Sports Holdings made a smaller loss this year was an agreement made with Vong Pech back in October 2020. The gist of the agreement was that while Blues were in the Championship, Vong Pech (via his company Oriental Rainbow Investments (ORI)) had to compensate Birmingham Sports Holdings for their portion of the loss.

For example, as BSH own 75% of Birmingham City, if the club lost £20M in a season, the BSH portion would be £15M which means Vong Pech would have to cough up to BSH £15m.

This would come on top of any financial hit Vong Pech / ORI took that season.

Last year couldn’t have been a good one for the club, as on the opening page of the accounts we can see a line called “Football Club segment compensation” which totals HK$201.218M (about £23M).

As this is the first payment made by Vong Pech I think this covers both this season and a pro-rated portion of last season (when the club made a much smaller loss thanks to the sale of Jude Bellingham)

In section 16 on page 17 of the accounts, a figure of HK$184.384M is given as the maximum amount outstanding for the year end 30 June 2022, which would seem to confirm my thoughts above.

This might seem a bit abstract to us in Birmingham; after all, it’s money being shuffled from one faceless business to another.

However, I think it’s interesting for a few reasons.

The first is if Vong Pech has had to cough up that much money as recompensing 75% of the loss last year, that would indicate a total loss for the club in excess of HK$245M – nearly £28M. If the club have lost that much money last year, they really are in trouble and I can only hope that I’ve missed some variable which has pushed that figure so high.

Secondly, I think it’s quite a clever move by BSH. Instead of taking hit after hit every year, the holding company is closer to being profitable, with money coming in from a fairly untraceable source in a legitimate way that isn’t a loan.

Thirdly and most importantly, I’d like to know if Maxco have wriggled out of this commitment should the EFL approve their purchase of ORI’s stake in the club. It’s going to be expensive enough to run the club without having to prop up BSH at the same time.

Not much mention of Maxco

I have to admit I was quite surprised that Paul Richardson and co took to social media to showcase their “mention” in the BSH accounts. After all, BSH didn’t tell us anything that we didn’t already know:

The Company has been informed by a substantial shareholder of the Company holding approximately 23.53% of the issued share capital of the Company that he has agreed to dispose of all of the issued share capital of Birmingham City PLC (“BCP”) beneficially owned by him (approximately 21.64% of the issued capital of BCP). To the best of the knowledge of the Directors, the completion of the transaction is still pending for the approval by EFL as at the date of this announcement.

This is nothing more than we were told in June, and all it really confirms is that there is a process ongoing for an unnamed someone to buy Vong Pech’s stake, which is waiting EFL approval.

If anything, if I was Richardson I’d actually be somewhat concerned by what isn’t said.

There is still zero mention of anything about Maxco managing / controlling the remaining 75% stake in the club held by BSH, let alone buying it.

The longer BSH can hold out without saying anything about that, the more I wonder if the current owners are just leading Maxco up the garden path.

If Maxco are still funding the club as they allegedly were in August and September, one can’t help but wonder just how much money they’ve gone through with nothing to show for it.

Taking into account the reported £1.5m deposit I think Maxco must be looking at maybe £6m spent by the end of this month; a lot of money for some minor Instagram clout.

My understanding as of late last week was that the EFL were still asking for more bits and pieces of information to answer questions that they had, and there was still no sign the EFL were in any rush to approve even the first part of the deal.

The longer it drags on, the more I wonder how patient Maxco can be – and with the initial long stop date having passed on Friday I wonder what appetite they have for extending that for any length of time.

Borrowing Analysis

As always, the other thing I’m fascinated with is how much BSH have borrowed to keep the company running.

As one would expect, BSH are quite coy in confirming how much they have borrowed from people, but as per this years accounts there are four principal lenders:

  • Trillion Trophy Asia – HK$250M revolving loan facility
  • Oriental Rainbow Investments – HK$300M revolving loan facility
  • Great Summit Ventures – HK$100M revolving loan facility
  • “Third party lender” – HK23,396,000 loan

As of the end of June this year, the company had borrowings of HK$246,783,000 with credit of HK$426,613,000 available. This works out to £28.183M borrowed and £48.72M credit available.

In comparison, last year there were only three principal lenders – TTA, ORI and a “Third party lender”.

Back then the accounts showed BSH had borrowed HK$57.607M and  had HK$504.403M available, which works out on the current exchange rate as £6.588M borrrowed and £57.702M available.

This shows that BSH have had to borrow a fair bit this year but have also been able to get more credit. This is mainly due to the facility offered by Great Summit Ventures.

It’s not been easy to find that company. A search of various company databases has drawn a blank for “Great Summit Ventures Ltd” or “弘峰創投有限公司” which leads me to believe that this company is based in a tax haven such as the British Virgin Islands or similar and that my chances of finding out who owns this company for sure is zero.

We do know from the announcement that it is owned by a “substantial shareholder” which probably narrows it down to one of three people – Paul Suen Cho Hung, Vong Pech or Lei Sutong.

As we know TTA are owned by Suen and ORI by Vong Pech it does make me lean towards Lei Sutong, which thanks to RFA’s investigation we know is a front man for Wang Yaohui aka the elusive Mr King.

If that is indeed the case, it’s no surprise BSH want to keep details of Great Summit Ventures Ltd quiet.

From all this we can surmise that BSH have had to resort to borrowing money again this year, which I’m guessing will have been used to send to the UK to keep the club running.

Contrary to the belief of some people out there, BSH do not take money out of the club, they put it in.

The 2020/21 season was easier because £25m+ of money from the sale of Jude Bellingham did a lot to keep the club running, but without that money last season, it will have had to have come from somewhere.

It’s actually possible to put together a rough guesstimate of how much money has to be put into the money from these accounts.

We can do this by using a debt figure given on page 17 – “Amount due to a related party”.

When ORI did the deal to buy 21.64% of the club back in October 2020, not only did they agree a profit / loss sharing deal as outlined above, but they also received a portion of the debt Blues owed to BSH as part of the deal.

This debt is shown as this amount due to a related party, and currently stands at HK$246.995M.

Because we know the figure from last year (HK$213.359M), we know that this has risen by HK$36.636M over the last twelve months.

It’s safe to assume this has gone up because ORI has loaned money to the club in the same way BSH does when it puts money in.

Allowing for recent currency fluctuations, we can work out ORI put about £3.5M into the club last year.

It’s also safe to assume that ORI has to put money in at a proportionate rate to BSH.

We know that ORI owns 21.64% of the club and that BSH owns 75%, so we can use these figures to guesstimate that BSH put in about £12M last year, based on ORI putting in £3.5M.

This means to keep the club running last year, a total of about £15.5M was put into the club, which works out at about £1.3M a month.

This ties up fairly closely to the figures I’ve heard banded about that need to be put in per month to keep the club running at the current level.

However, for those scared of administration I think I need to once again reaffirm that this is very unlikely. Admin means BSH losing their listing, and as the company the club owes the most money too BSH are absolutely in control of any possibility of an administration situation.

These figures show the magnitude of the problem Maxco have if they buy the club.

Not only is it going to cost them £35M or so to buy the stadium and the club, they’re going to need to put in £15M+ a year to keep it running at this level. To have money to spend on players, to invest in the stadium and the training ground is going to be a whole lot more – and that doesn’t even take into account if they have to compensate BSH for any losses made in the Championship.

I think these figures need to be a wakeup call to some fans who have this notion that the club is being asset stripped and this is why it has no money.

The fact is that BSH have had to do the exact opposite of asset stripping; ie dumping piles of money in and they’re now paying the price for some horrific financial decisions made by their appointees.

The club is slowly coming back to financial normality but its still a long way off; there are still some very high wage earners on the books and until their contracts expire or are renewed at a more sensible level, the club is going to have to remain a tightly run ship.