Rangers' debt is only a fraction of their turnover so why is there all this fuss?

[ian1964 10,720]

After all, you would think, following the most turbulent week experienced at Ibrox since Mo Johnston turned up in a blue jersey 20 years ago, that the club was on its uppers and the bailiffs at the door.

 

In fact Rangers' debt ââ?¬â?? even allowing for the absence of current trading figures ââ?¬â?? is only a fraction of their turnover.

 

A large fraction, to be sure ââ?¬â?? somewhere between a third to a half of annual revenue ââ?¬â?? but where does that put the club?

 

The answer is, on the one hand, well behind Celtic, whose near-elimination of the need for an overdraft suddenly looks a lot less like penny pinching and much more like prudent fiscal stewardship, as I am sure nobody will make a point of saying at the Parkhead annual general meeting today.

 

Celtic might be a little more sombre about this season's home record, which was dented yet again on Wednesday, this time by Hearts. That would be Hearts who, like Kilmarnock ââ?¬â?? just to pluck another example from the SPL ââ?¬â?? are in hock to the tune of multiples of their turnover, something like three or four times what they can earn in a year.

 

In fact, the last figures available for Hearts show that the Tynecastle club was Ã?£30.47 million in debt ââ?¬â?? and that was after a debt-for-equity transfer agreement with its parent company, UBIG, worth Ã?£22 million.

 

Mind you, Vladimir Romanov was basically rearranging the piles of money he owed to himself, as Sir David Murray used to do at Ibrox when Rangers were much, much deeper in the red than they are now.

 

Which brings us back to the basic question ââ?¬â?? why have Lloyds waded into a situation which invites exactly the sort of adverse publicity ââ?¬â?? reaction from angry supporters ââ?¬â?? that sober-sided financial institutions traditionally shun? Well, you and I are partly responsible, assuming that we are both UK taxpayers.

 

We own 43 per cent of the bank, which has cost us a tidy Ã?£17 billion. Lloyds has actually repaid Ã?£3 billion, but may need another Ã?£25 billion, which would involve a rights issue ââ?¬â?? the same wheeze Murray used to reduce Rangers' debt when it went stratospheric a few years ago.

 

Why does Lloyds need more money? To keep it out of the government's toxic debt insurance scheme. Wot's dat, you ask. It's a plan to make the biggest banks identify their stinky loans, so that a safety net can be set up in case all the bad debt falls due at once, causing another economic crisis, exactly like the one we just had.

 

And why does Lloyds not want to be insured against its rubbish debts? At this stage, I must turn the issue over to our esteemed colleagues on the business pages ââ?¬â?? or Bremner, Bird & Fortune.

 

But the upshot is that Lloyds' banking hit-teams have been crawling over the accounts of everybody who owes them a rusty penny. Rangers, as I say, are not particularly culpable in this respect, but nor are the very many businesses who have been shell-shocked by the bank's urgency to claw back whatever cash in hand might be available and hawk off anything else that might raise a quid or two.

 

One Scottish newspaper this week asked if Rangers have breached the terms of the club's banking covenants.

 

A leading Scottish entrepreneur provided this column with the answer when he said: "The bank has come into hundreds ââ?¬â?? maybe thousands ââ?¬â?? of boardrooms, looked at the books, ripped up the existing covenants and slapped down new pieces of paper with very tough demands on them. It's not just Rangers."

 

No, it's not. Murray's stake in Rangers is operated through Murray International Holdings. Four years ago, MIH funded its biggest ever period of growth with bank loans of over Ã?£500 million ââ?¬â?? but, hey, turnover was Ã?£600 million and the good times were rolling.

 

At the last publicly available count, MIH owed Ã?£751 million, ââ?¬â?? some observers believe the next figures will be even higher ââ?¬â?? but the turnover was down and the profit negligible.

 

So what are the options for Rangers now?

 

A prospective owner (or owners) could buy Murray out and service the debt ââ?¬â?? or even increase it, as the Glazers have done at Manchester United. Or the new owner could acquire Murray's stock and pay off the overdraft.

 

There are other options, too, but whatever happens, there is a complex web of relationships to unravel ââ?¬â?? Lloyds own a stake in MIH, for example.

 

As for who runs the club, the bank is, of course, correct to say that it is not in the business of conducting the day-to-day affairs of the business it funds.

 

But hard-nosed interrogations about business plans, turnover and cash flow have become routine in boardrooms, as have heated exchanges with the bank's representatives about how companies are supposed to conduct their business under such pressure. Rangers have not been an exception.

 

If you doubt that, consider the utterances of another bloke called Johnston who arrived at Ibrox with a fanfare last month. Alastair Johnston, the new chairman, said: "I want to give the current management team new contracts. That is not reliant on outside finance."

 

Then he added: "We are not run and operated by the bank but we do rely on the bank for finance. If Rangers were run by the bank, I would not be here."

 

Uh, OK. Which leaves us with one other keynote statement from the incoming chairman, one in which he set out how the club would identify a suitable buyer. I leave you to judge it for yourself.

 

"Rangers are going to do this in the manner you would expect of ââ?¬â?? Rangers; subtly and with class and without putting ourselves up for sale. I'm not interested in bottom feeders."

 

How Smith managed the news

 

One reads that Walter Smith has been, according to your pundit of choice, ââ?¬Å?embarrassedââ?¬â?¢Ã¢â?¬â?¢, ââ?¬Å?incensedââ?¬â?¢Ã¢â?¬â?¢ or ââ?¬Å?humiliatedââ?¬â?¢Ã¢â?¬â?¢ by Lloyds Bank issuing a statement to say that they do not run Rangers, after the Ibrox manager declared on Saturday that they did.

 

Well, Walter might have been all of those things, but surely that was last week, when Unirea thumped Rangers 4-1 in what, by common consent, was the worst European result in the club�s history.

 

You remember ââ?¬â?? the Champions League game after which the incandescent punters roaming the streets outside the stadium jostled to deliver their verdicts to the TV news cameras. Much of the footage, being couched in terms of extreme profanity, could not be used. However, the gist of what was salvageable was clear enough ââ?¬â?? ââ?¬Å?Smith must go! Now!ââ?¬Â

 

Four days later the manager issued his state of the nation address about the plight of the club, taking care to issue separate briefings to Sunday newspapers, the dailies and the broadcast media.

 

At once the phone-ins and online chat rooms were deluged with messages of support from Rangers fans standing four-square with the gaffer.

 

I do not know whether this qualifies him for the Pulitzer Prize for Journalism, but for services to the entertainment industry one might suggest another accolade.

 

Arise, Sir Walter!

 

http://www.telegraph.co.uk/sport/football/leagues/scottishpremier/rangers/6463025/Rangers-debt-is-only-a-fraction-of-their-turnover-so-why-is-there-all-this-fuss.html

[Frankie 8,552]

Some good points in that article...

[Union City Blue 0]

Some good points in that article...

 

Rangers' debt is only a fraction of their turnover so why is there all this fuss?

 

Apart from the ridicolous title!

[Frankie 8,552]

Hahaha - I never even read the title...!

[craig 5,199]

Rangers' debt is only a fraction of their turnover so why is there all this fuss?

 

Apart from the ridicolous title!

 

Aye, 30 million is only a fraction of 55 million, right ?

 

Technically true, it IS a fraction - however, "only a fraction" implies not a very big amount.

 

In most folks opinions 55% is a pretty sizeable fraction.

[gisabeer 409]

walter doesnt do critisism.....at least not when its aimed at him.

[Guest GeekBear]

I agree that the situation we're in seems to be being portrayed as absolutely desperate. When you look at the figures and make comparisons in the SPL (Celtic apart) and, particularly, the EPL, the furore does seem a bit overblown. I'm sure the problem is that we're inextricably linked to SDM's situation, and the figures there are clearly a much bigger deal.

 

Some perspective:

 

- Latest figures show Premier League clubs owe �£3.1bn

- Manchester United and Chelsea are most in debt

- 15 of the 20 clubs are now subsidised by owners

 

From http://www.guardian.co.uk/football/2009/jun/02/premier-league-clubs-debt

[maineflyer 0]

Just what exactly is the debt at Rangers? Is it the �£30m everyone keeps talking about or should we add to that the �£50m from MIH to underwrite the last share issue? If MIH went to the wall, would the bank be looking for that �£50m to be repaid as well?

[craig 5,199]

Just what exactly is the debt at Rangers? Is it the �£30m everyone keeps talking about or should we add to that the �£50m from MIH to underwrite the last share issue? If MIH went to the wall, would the bank be looking for that �£50m to be repaid as well?

 

No we don't add the 50 mill to it MF. It was a rights issue which means the 50 mill that MIH underwrote/bought became a part of sharehiolders equity. This means that it is not considered debt and, being equity, there is no requirement to repay that amount.

 

It was shifting debts from one company to another within the MIH, we are just lucky the actual debt now resides outwith RFC's books.

[maineflyer 0]

No we don't add the 50 mill to it MF. It was a rights issue which means the 50 mill that MIH underwrote/bought became a part of sharehiolders equity. This means that it is not considered debt and, being equity, there is no requirement to repay that amount.

 

It was shifting debts from one company to another within the MIH, we are just lucky the actual debt now resides outwith RFC's books.

 

Thanks Craig, it has always worried me where that liability lay.