While ZO Future Group (as Birmingham Sports Holdings is now named) no longer has any operational or financial influence over Birmingham City, they are still required to submit notifications to the Hong Kong stock exchange regarding certain transactions. This is why ZFG announced on Thursday afternoon that Shelby Companies Limited had raised the club’s lending facility to £100 million.
If you want to see the original announcement for yourself, go here.
Before proceeding with this essay, I must reiterate that I am not a lawyer or an accountant, and that anyone considering investing in ZFG should obtain professional counsel before doing so.
What Does This Announcement Mean?
One of the things I’ve found with announcements like this is that they continue to confuse some fans regarding Birmingham City’s ownership situation; and if these kind of statements show that the prior ownership regime can restore control of the club.
So, before we get into the specifics of what this news entails, I think it’s worth revisiting why it was made in the first place – and why there’s nothing to be concerned about from an ownership standpoint.
As I stated in the first paragraph of this post, the announcement was made by ZO Future Group, the new name for Birmingham Sports Holdings.
Tom Wagner and Knighthead have complete financial and operational control over the club, but they only own 45.64% of it.
ZFG owns 51% of Blues, and while they have no control over what happens at St Andrews, they are legally obligated to notify the stock exchange of any transactions involving the club that exceed certain thresholds, as these can still affect the value of ZFG shares.
With Knighthead’s better legal and accounting expertise in the Blues ownership position, there has undoubtedly been a demand on ZFG to make this type of declaration in a timely and accurate manner.
This is beneficial to both Blues and fans since it ensures that the club is properly managed.
Even better, the requirement for this type of disclosure results in a bit more openness into the club’s finances.
The notice released on Thursday is thick on legal jargon, but it contains a few of key details.
The first piece of information that I believe is critical to understand is why Shelby Companies Limited increased the credit facility available to the club: Blues have already used the initial £50 million made available.
Given the money spent on both the field and the team, it should be rather evident where that money has gone.
And, while some fans may be excited about another cash injection, my gut feeling is that this facility is more about ensuring that there is a simple source of cashflow available to pay the bills until the next chunk of money – whether transfer, broadcast, or commercial – arrives.
However, a deeper examination of this release reveals a second piece of information that I’m not sure many people are aware of: ownership of the Shelby Companies Limited investment vehicle.
New Investors
Shelby Companies Limited filed a flurry of share allotment applications with Companies House last week.
While no information was provided as to who had purchased these new shares in SCL and thus become investors in the club, I had heard from my own sources that Knighthead had indeed allowed some new investors to put money into the project, albeit without the ability to vote or nominate directors.
I had considered writing about those filings, but one of the things that stopped me was that I realized that without context, I couldn’t offer any insight into how large of a chunk had been sold, let alone how much money had been raised.
However, ZFG’s declaration on Thursday includes a portion that provides information about the relevant parties engaged, such as SCL.
The SCL section provides detailed information about the company’s ownership structure.
According to SCL’s most recent confirmation statement issued in May, the ownership composition of SCL was as follows:
Knighthead Annuity and Life Assurance Company (KALAC) owns 69.3 percent
Knighthead Master Fund LP (KMF) owns 27.4%
Tom Brady owns 3.3 percent.
The announcement published by ZFG today has some significantly different figures, namely:
Approximately 64% owned by KALAC.
KMF owns around 25%.
If we suppose Tom Brady still owns 3.3% of the club, the remaining 7.7% has been sold to new investors. This sum could be greater, as I believe Brady’s investment has also been diluted.
We won’t know these figures for certain until further filings are made with Companies House, but I believe it is safe to assume that a sizable portion of SCL has been sold off, in part to mitigate Knighthead’s risk.
The announcement also verifies Tom Wagner’s own financial interest in SCL, which has dropped to less than 10%. The cause for this is attributed to capital increases by both SCL and KALAC.
I could be completely wrong, but I believe this is a good thing because it shows there are more people out there who believe in Wagner and Knighthead’s vision for Blues and are prepared to support the project.
And, while it is critical that all investors collaborate, having multiple people involved protects the club from any shock created by a sudden change in an investor’s fortunes, which the club has suffered significantly from in the past.
The Future
This announcement has reignited discussions over Blues’ future ownership, namely how long the team would be tethered to its estranged Hong Kong parent corporation.
I’m not sure if this news has accelerated Knighthead’s timeframe to complete the deal.
As things stand, I expect the second tranche of 51% of shares will be acquired by Knighthead sometime before the end of next season.
However, I believe we must first comprehend ZFG’s current predicament.
As part of the disclosure, ZFG must affirm to shareholders that they have explored all options for raising cash for the club.
On page six, it is clearly stated why they have no choice but to take on additional debt from SCL.
ZFG confirms that if they went to an external lender, they would have to pay more interest, and the time required for the requisite due diligence and discussions makes moving to an external lender difficult.
Furthermore, ZFG has acknowledged that due to the status of their accounts, they will find it difficult to borrow money from anyone else and may be required to produce additional collateral and securities.
Similarly, ZFG’s alternative option, issuing fresh shares or something similar, would necessitate long conversations with possible investors and/or underwriters, which would cost more money and be uneconomical.
In short, Tom Wagner and Knighthead have done what I always believed was necessary in terms of selling the club.
They have legally screwed ZFG into the ground, leaving them with no wiggle room.
This is why, despite the fact that Knighthead owns only 45.64% of the club, we as fans can be confident that the horrible old days are over.
While I understand that this type of stuff is boring and that talking about the Blues winning seven games in a row is far more entertaining, I also believe it is critical to continue to emphasize how financially stable the Blues will be.
After watching the shitshow unfold at Reading FC – a shitshow that could have easily been us if Knighthead hadn’t stepped in – I want to reassure Blues fans that we are on our way back to the good times.
Read more news on:https://sportupdates.co.uk/
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