Debt Or Equity - What Does It Matter To Cardiff City?

Last updated : 01 May 2014 By CCFC Trust

Trust board member Keith Morgan, an accountant and football finance expert, has set out the position. 

Many people have raised the issue of Vincent Tan`s continued delay in carrying out his promise, made publicly on several occasions, to convert all of the loans he has made to the football club into shares and to make the club debt free. 

Some fans are of the view that it makes no difference on the basis that “he only owes the money to himself” now that he holds a significant majority of shares in the club`s parent company. However, unfortunately, this is simply not the case.

As long as Vincent Tan continues to be a creditor of the company then it gives him two significant powers.

1)     To control the board of directors by appointing the majority of the holding company board – Malaysian employees of his who can simply outvote the UK directors – even though Vincent Tan is not officially a director himself (although under UK insolvency law , should the company enter a formal insolvency, he would be regarded as one because of that control he exerts).

2)     More importantly, he can demand his money back at any time as it is not a term loan to be repaid over a period of time, but is repayable on demand like an overdraft. There appears to be a wide disparity between Vincent Tan`s own claims that he is owed £70m to £80m by the club and the claims of the Chairman Mehmet Dalman that Vincent Tan has put in up to £140m.

WhiWhichever figure is correct. the club simply does not have the money to repay it even with a sell-off of a lot of players and Vincent Tan taking all the end of season Sky TV payment plus next season`s first instalment of “parachute” payment. (The football authorities may not allow this to happen anyway if they believe the club may fold financially as a result and hold on to the money until the position is clear).

If Vincent Tan honours his promise to convert all debt into shares, then he is no longer owed any money and can make no demand for repayment from the club. His outlet for recovering his money would then be a sale of his shares to a new investor. Two other routes are NOT available to him in the foreseeable future.

1)     A float on a Stock Exchange, either in the UK or Singapore or Malaysia. The club simply does not qualify for such a float due to its record of financial losses and lack of growth potential ( a relegation would half the club`s income while it would have to finish well up the Premier League on a consistent basis to significantly improve this season`s income level). The inability of the club to follow this route was confirmed by the Chairman at a recent meeting with supporters` representatives.

2)     Paying himself back with big share dividends each year. This would be a breach of UK law as companies are only able to do so out of cumulative profits – i.e. all of the £millions of losses from past years would have to be cleared first. The recently amended budgeted profit for the current season is about £12m even playing at the top level with all the Sky income that entails, so it would take ages for this to happen.

So Vincent Tan sticking to his promise to convert all his debt into shares DOES make a difference to the club`s financial stability – a very big difference. I am sure that most fans hope that he will honour that promise as soon as practicable as it was first promised to be done when the Langston debt was settled, which happened several months ago.