A quick look at the finances of MIH

[Bluedell 5,611]

The MIH accounts have been delayed until towards the middle of next year, so I thought I would take a quick look at a couple of major problems that they may be having, based on the last set of accounts that they issued as at January 2008.

 

Property values/net assets

 

Net assets (total assets less total liabilities) in the accounts were shown as �£157m. Included in this is property of �£545m. Commercial property values have fallen 30% since the start of 2008, which would equate to �£163m.

 

If this new valuation was applied to the 2008 accounts then the Murray group would have net liabilities and would be technically insolvent.

 

It is perfectly possible to be technically insolvent, while still being able to repay debt. This is the next area to be looked at.

 

Repayment of debt

 

The accounts show that MIH had �£4m of cash, but had loans of �£26m to repay in the year to 31 January 2009. Perhaps not the biggest problem in the world.

 

However in the current year, MIH had a whacking �£406m of loans to repay, with no apparent way of doing so.

 

Given the current banking crisis, it is not thought that MIH would have been able to renegotiate the payment terms of these loans, and must have resulted in MIH defaulting on some of its repayments and perhaps some related banking covenants.

 

This would be what has allowed the bank to insist on the appointment of Donald Muir to the board of both Rangers and the Premier Property Group, and is apparantly giving him the power to over-rule the other Rangers board members. Lloyds obviously want to recoup as much of this cash as quickly as possible, and has them forcing changes on Rangers who had a managable financial situation, at least in the short term of the next 12-18 months.

 

When people buy a house it is viewed a long term asset and they pay for it with a long term mortgage. Why MIH decided to finance the purchase of commercial property with short term loans is unexplainable and is possibly the biggest mistake David Murray has made in his career, and could ultimately result in MIH being wiped out.

 

It has certainly put Rangers under threat but it must be hoped that Rangers emerge unscathed and looking forward to a bright future if a new owner can be found.

 

 

 

Caveat - This is a very simplistic view and there are a number of assumptions made. I have not gone into technical details to make it easier for the reader to understand.

 

Property values are said to have fallen 22.5% during 2008 and have fallen a further 7.5% in the 9 months to Sept 2010 (source IPD UK balanced Monthly Funds). However a well-respected fund manager told me that it was nearer 43%. MIH's property may be of a higher quality and may not have fallen by as much, but Ibrox is overvalued and as such I don't think 30% is unreasonable, although I am no expert on commercial property.

[Frankie 8,552]

Cool - will get this on the main site now...

[Frankie 8,552]

Short and not so sweet reading that article...

 

One wonders why this straightforward and worrying information hasn't accompanied the debate in the media. Seems clear to me that MIH is finished in its present form.

[Bluedell 5,611]

One wonders why this straightforward and worrying information hasn't accompanied the debate in the media. Seems clear to me that MIH is finished in its present form.

 

Because it takes years of training and experience to be able to analyse a set of accounts so well.

 

I spoke to an number of financial analysts and fund managers yesterday and they were actually very bullish about commercial property, but I understand that it's just the last few weeks that have changed their minds. One gave me a presentation where his slides said that they expected weaker market conditions over the next 2 years, but he contradicted this by suggesting that he was going to increase their holdings in it, so it seems that there has just been a change in market sentiment very recently.

 

It appears that there are gains to be made, but it could all come too late for MIH, who appear to need a lot of cash quickly and may have to be broken up to be able to get this.

[Frankie 8,552]

Why would they have taken on short-term loans instead of longer term borrowing?

[Bluedell 5,611]

Why would they have taken on short-term loans instead of longer term borrowing?

 

That's the big question.

 

Murray has always run Rangers on a short term basis and always seemed to hope that a solution (Enic, Dave King, NTL, JJB) could be found. He hoped to find another investor in 2000/1 but that seemed to disappear post 9/11 and we ended up with massive debts.

 

This time it's the banking crisis that he hasn't foreseen and it's hit him big time in respect of MIH. i presume he thought he could always renegotiate, and he hasn't learned his lesson from before that unexpected world events can come and bit you.

[Zappa 0]

Why would they have taken on short-term loans instead of longer term borrowing?

Maybe to get lower interest rates?

 

Is it at all possible that it was done knowing fine well that some MIH companies would need to be liquidated? Sometimes it's beneficial for the owners of companies to liquidate them & start over.

[Bluedell 5,611]

Shroomz, I'm not sure of interest rates on a short term loan would be significantly lower than a long term one.

 

Given that a lot of the MIH companies/properties could be sold and the proceeds going to the bank, there may not be anything left for him to start with again.

[bmck 117]

BD, i heard that murray moved all his investment out of steel production and into property. dont know when it happened or if its true, but it seems like if it were true and the vast majority of his investments were in property, is the immediacy of all this now a direct consequence of the recession and its impact on the housing market? if so, wont everything just be merry and as it was when it eventually picks up, if indeed it does?

[Bluedell 5,611]

BD, i heard that murray moved all his investment out of steel production and into property. dont know when it happened or if its true, but it seems like if it were true and the vast majority of his investments were in property, is the immediacy of all this now a direct consequence of the recession and its impact on the housing market? if so, wont everything just be merry and as it was when it eventually picks up, if indeed it does?

 

He sold Murray International Metals in 2005, but still has over 50% of his turnover in metals. Yes, he has moved into property although this isn't reflected in turnover as a lot of it is still in development, and a lot of the potential would be in capital growth.

 

If he had the cashflow to meet the loans then assuming that there was a pick-up then, potentially everything would be OK. It's a big IF though. It always appeared that he was going to struggle to meet the payment of the loans even if there had been no banking crisis and no fall in the commercial property market.

 

If we go with the assumption that he would have been able to rengotiate the payment terms of the loans then there should have not been a problem, but I don't see why he took that risk. It would have been interetsing to see what would have happened, but I guess we will never find out.