Often Partisan

Little Money in Big China

No sooner do I post a blog about how the Carling Cup is going to make Blues a success in China, does an article appear about how Birmingham City are in the toilet financially. Oh to be a blues fan, eh?

The article is well discussed online, and the salient points are thus – the holding company’s current assets do not cover liabilities; the company are making up the shortfall via a share issue (which is only partially underwritten and has been extended for a month), and a loan obtained by Carson Yeung from a financial institution which is secured on his house.

What does this mean in layman’s terms?

Cashflow is normally an issue in football clubs, where the bulk of the money comes from TV revenue etc. Clubs know that they’re going to get a whack of cash at a defined point in the future, but they might have small bills that need to be paid in the meantime – thus they would either get a loan from one of their directors or maybe an overdraft to ensure that they’ve got cash in the kitty until the money comes in – kind of like having an overdraft to tide you over until payday. It’s no big deal.

However, this isn’t like that sort of situation. Essentially, the club are seen as being insolvent – if they were asked to pay all their debts right now they wouldn’t have the cash to do so. Again, in real life this happens – I suspect if most people were told that they had to pay their mortgage off in full next week they couldn’t. Thus the bank have a loan secured on the house, and if you can’t keep up with payments, you lose the house. This of course isn’t a problem with a regular income – if you lose that regular income things massively change, but it’s not something you would think about. What the banks (and it is the banks, not the PL) have asked CY to do is to give a guarantee so that he can secure money to pay off the holding company’s debts. Thus they’re willing to loan him the cash – but with his property as collateral. This is a bad sign; it means they see him as a high risk. It’s also a sign of last measure from Carson – because if the business goes down the toilet, he loses everything – not something you want to happen.

Of course, there may be an innocent explanation – but as yet I have seen no word from the club. I’d like to ask Peter Pannu to answer three questions, to try and get this to a point where at least Blues fans will know what is happening. These are:

1) In the set of results issued before these latest interim figures, there was a note about the club being technically insolvent. Again, we are seeing similar issues. What steps are the club taking to ensure that it will start trading solvently and properly? It is obvious the share issue is under-subscribed; does the club have any other methods of raising money or will it be forced to sell players to cover debts?

2) Prior to the incumbent board taking over the club, news like this of Birmingham City didn’t happen. What has changed so significantly that we are consistently hearing that the owning company of Birmingham City is struggling? Can this be rectified easily?

3) Carson Yeung is a minority shareholder in the holding company. Why is he being asked to act as guarantor to ensure there is enough cash within the company? Where are the other major shareholders and what are they doing?

I don’t expect any answers, but if Peter Pannu wants to keep the fans onside and not worrying, he will need to issue a statement soon that is open and forthcoming.

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