Friday 19 January 2018

Premiership clubs' debt swap is 'window dressing'

Nick Clark

Recent moves by Chelsea and Manchester City's owners to wipe out debt by converting loans into equity work "by moving money from their left pocket to the right", say financiers.

It emerged this week that Manchester City's Sheikh Mansour had converted £304.9m of the club's loans into equity, a week after Roman Abramovich had done the same with £340m of interest-free loans to his club, Chelsea.

The accounting operation, which one banker called "balance sheet window dressing," was in reaction to Uefa president Michel Platini's calls for financial fair play in football. He has threatened those that load themselves with unsustainable levels of debt with exclusion from European competitions.

One investment banker who has advised football clubs on debt issues, said the loans had been left over from the time the clubs were bought. "They were convenient at the time but it doesn't serve any purpose now," he said. "They can't get any tax deduction on the interest because the clubs weren't paying it."

Essentially the owners, who hold all of the club's equity, have also lent it money. A debt for equity swap will beef up the balance sheet, what the banker called: "putting money from your left pocket to your right pocket". It doesn't change the clubs' potential valuation nor does it change the way they are run. The banker said: "The bonds didn't pay interest and had no maturity. Why go through the illusion?"

He added that it wasn't like the loans at clubs like Liverpool, whose debt is held by banks and features repayment schedules and interest.

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