LCFC owner: Santa Claus or sly Fox?

Most fans have responded positively to the news, as revealed by the Leicester Mercury on Saturday, that the Thai owner has wiped out Leicester City's £103 million debt.

The debt-for-shares swap was seen as an early Christmas present by supporters, and it tasted even better when we then beat QPR in their own backyard on the same day.

However, many have suggested Vichai Srivaddhanaprabha (or Mr S, as I like to call him) isn't entirely the benevolent benefactor the move may suggest. (There are many cynical Foxes fans out there, believe it or not).

After spending two days carefully studying what he had done after first seeing the documents on Companies' House on Thursday (Dec 19), and speaking to finance experts, it became clear this was a very positive move which can only benefit the club. Indeed, as one prominent commentator said this week, it could be argued this is the most significant thing to happen to City in 2013.

So why the cynicism? One of the main reasons for it stems from suggestions Mr S may have charged up to 8 per cent in interest on some of the £77 million in loans he had put into the club. The  documents make no reference to this, but from my crude calculations (not having the latest accounts for the club) the £103 million in debts doesn't include any interest.

Mr S bought the Foxes in 2010 when they had £26 million of debt. He is known to have put £77 million into the club in the form of loans - you do the maths.

He has also created 10 million of shares priced at £1 each which he intends to buy. This way of pumping money into the club complies more favourably with the Financial Fair Play rules.

The deal leaves the club valued at £118 million, but this is merely a figure on paper and has no basis in reality. 

The club will only ever be worth what anyone is prepared to pay, and as it is no longer floating on the London Stock Exchange (a rollercoaster period for the club, which should make us appreciate Mr S even more) there is no independently set value. Some have speculated City could be worth up to £70 million if it became established in the Premier League. Others have suggested its value could surge to £120-150 million if it began to finish regularly in the top four of Premier League. This, if that was always his plan, would perhaps be the best time for Mr S to cash in his chips. But if he did, just how much of a profit would he have made?

Say, if the best case scenario was to happen, he sold City for £150 million, how much would the businessman have made from owning the club? You would need, of course, to first know exactly how much he'd put into the club. This can be quite difficult given that the latest accounts are not yet available.

What we do know, however, is that the deal to take control of the club was said to be worth £39 million. This is likely to have been made up of £26 million in underwritten debt, £5 million in shares and £8 million in other costs, probably made up of the 'goodwill' associated with the City name and its history and other assets. This means he actually spent £13 million in hard cash to take over the club.

He has since put £77 million of loans into the club, which have now, along with the other debt, been converted into shares. Earlier this year, one of his businesses paid £17 million to buy the King Power Stadium from a New York pension fund (although that £17 million had stood on the club's accounts as a debt, he has in effect crystalised that debt). The latest documents also show us he is about to put an extra £10 million into the club by buying more shares.

So that makes a total of £117 million he has pumped into the Foxes. So the profit he would make would be £33 million, a 28 per cent return on his 'investment'.

However, this is a very simplistic way of looking at it (is it really realistic to say the Foxes could end up as a top four Premier League club?) and it doesn't take account of any further cash he may put in should the club not get promoted to the Premier League this season. On top of this, it also doesn't take account of the value of the marketing opportunities being in the Premier League would give the owner's King Power duty fee brand. It also doesn't include the impact of any potential marketing push of the club in the Far East once it's in the top tier, which may have a very significant influence on its value. 

But I thought it would be interesting to set out a potential scenario, nonetheless.

Merry Christmas and Happy New Year.

Click on the original story below, as broken by the Leicester Mercury last Saturday:

http://tinyurl.com/qdg9no5