Whilst the Rangers story last year was about, as it is now presented, the company which owned the assets and business which made up the football club, going into administration, the situation this year at Hearts comes from the opposite perspective.
Here it is the bank which is owed huge sums by the company which owns the assets and business which make up the football club going into administration. Simples!
Ukio Bankas, the Lithuanian Bank largely owned by Vladimir Romanov and his UBIG Group has been placed into administration, and the administrators are looking for buyers for the assets. That suggests that the value which UBIG can attribute to its involvement in Hearts will be slim to zero, and slim left town.
The corporate structure of Hearts is an interesting one.
Heart of Midlothian PLC is a company formed in 1905. Its ownership structure is as follows:-
Quantum Holding SA 15%
Quantum Holding SA is a Geneva based company. It was formed in 2006. Its first President, though only for a few months, was Julia Goncaruk. That name seemed familiar. A quick check of the Hearts website shows someone of that very name as a non-executive director at Tynecastle.
There is another company – Heart of Midlothian Football Club Ltd, which was formed in 1990. It is wholly owned by the PLC and is listed as dormant. It has one director – Sergejus Fedotovas. He is also on the PLC board.
What does administration mean for Hearts?
Let’s try to make it a bit clearer, shall we?
- Heart of Midlothian PLC owns the assets which constitute the Hearts football club.
- Heart of Midlothian PLC owes around £24 million to Ukio Bankas.
- Ukio Bankas holds a standard security over Tynecastle.
- Ukio Bankas has a floating charge all of the remaining assets.
- Ukio Bankas is now in administration.
- Heart of Midlothian PLC’s majority shareholder is UBIG.
- Ukio Bankas’ majority shareholder is UBIG.
EDIT – 12.27pm Sunday 17th February 2013
Thanks to all for the added info regarding the make up of the debt and the charge and security holders. I’m always happy to be educated.
Time permitting will look to update piece later but it is clear, I think, that most unlikely Hearts stay in present ownership.
And not through choice.
Someone will pay something for Hearts – and I see from papers this morning that offers are already on the table.
I wonder if Brian Kennedy, who came into the Rangers bidding not as a Rangers fan but as a football fan, and wanting to save a famous football team, will offer to do the same here if necessary?
As was very clearly laid out in the share prospectus issued last year, and about which I wrote here:-
Hearts state that there is no guarantee UBIG will continue to support Hearts in the future. The Board is comforted by UBIG having supported the club since 2006 by funding and debt re-structuring.
Now, administration under the Insolvency Act 1986 in the UK is a complicated enough process. Administration under Lithuanian law is not something which is regularly discussed in the salons of Lanarkshire.
However the common thread is that both procedures can arise when the company in question is in financial problems, and usually some drastic solution is required.
In addition, in a UK administration process, the owners of a company in administration have significantly decreased powers to direct the course of the company.
On the basis that similar considerations apply, it would no longer be possible for UBIG, as a major shareholder in Ukio Bankas, to direct that Heart of Midlothian PLC should continue to receive funding on favourable terms. (By favourable I mean that the lender has not been demanding repayment).
Where the debt far exceeds the value of the assets, as is almost certainly the case here, then, as the Prospectus made clear, it was the support of the bank and of the owners which kept the company going.
If Ukio Bankas is needing money (as public statements about the administration suggest), then its administrator could come knocking on the door of Tynecastle looking for “proposals”.
Heart of Midlothian PLC does not have the money to pay. It could of course sell the ground and look to play football as a tenant of Murrayfield, Easter Road or Meadowbank? (Are there still football facilities at Meadowbank? I have no idea.)
Ukio Bankas would be able to force Heart of Midlothian PLC into liquidation, so the choice to sell the ground would be taken from the PLC’s hands.
Could the Rangers scenario be repeated? Could a new buyer appear who would be willing to take the assets, ground included, off the PLC?
The problem is that, as Ukio Bankas have a security over the ground, as I understand it, the administrator of the bank would need to be satisfied that he could not sell the ground for more, perhaps for development. There was no substantial secured creditor at Rangers and thus the administrators could sell off the ground and Murray Park without the heritable creditor intervening.
What would someone be willing to pay for Hearts, as a collection of assets? If Rangers, now valued at near or around £100 million sold for £5.5 million, then what value Hearts?
And as we have seen, the process of an asset sale does not guarantee retaining players.
Maybe Craig Whyte could re-appear and buy Hearts for £1?
The future looks, from this outside perspective, to be bleak, and actually made more so because the financial pressures come from outside rather than internally.
It is unlikely that an administrator appointed by the Lithuanian government to run Ukio Bankas will be at all bothered about the fate of a Scottish football team. Of more value to Hearts, and perhaps the only thing that might keep them afloat, is that Vladimir Romanov is a major figure in his home country and undoubtedly an influential one. On that basis the administrator might be less aggressive than with another company, knowing that Mr Romanov has every incentive to resolve these issues if possible.
But, should the administrator make his was along Gorgie Road to demand that the Ukio Bankas debt is paid, then one could very quickly see Heart of Midlothian PLC heading quickly for administration and then liquidation, and players and other staff being made redundant in droves.
Mr Romanov is clearly a master of negotiation and business risk-taking. If he still wants to play a role in Scottish football and still to own Hearts, then he will have to perform to the top of his game to reach an accommodation with the Ukio Bankas administrator. More likely the fate of Hearts might be tied up as a loose end, should there be a solution arrived at regarding the wider fate of Ukio Bankas.
As I often said about the Rangers mess, we shall have to wait and see!
Posted by Paul McConville