The importance of looking

Just before he immersed himself in that Six Nations thingy, I sent some questions to my rugger fixated Square Mile chap.

He emerged from his televisual scrum this morning, and I was grateful for his efforts.

You can see my questions below in bold and his answers in italics.

He had based his analysis on the published accounts and recent statements from RIFC.


What is the way forward for Rangers International Football Club?

 At present, Rangers International Football Club (RIFC) remains a loss-making business, which has no credit facilities with a bank. In addition, it is no longer listed on an exchange, shares are traded on a matched basis via a broker J P Jenkins. Floated at 70p the indicative price today is 27p.

Cumulative losses for the company since it was created is £15.235m.

This company will incur losses again this year, and recently confirmed that £2.5 additional finance is required to complete the season in the year to 30 June 2016. It appears that £1.5 m has been raised so far.

In the recently published accounts, the directors have also stated that further additional finance is required for year 2016/17.

Currently, there are several outstanding legal issues, which includes criminal investigations into the purchase of Rangers and the acquisition of their assets by Sevco Scotland Limited.

Consequently, there are substantial questions relating to the ownership of the assets of the RIFC.

Until these matters are resolved, there is little likelihood of the company being relisted on any exchange. Consequently, RIFC has no real recourse to raise finance from this source in my opinion.

Until now RIFC has been reliant on loans from directors, and also, recently, reportedly loans from Hong Kong investors. The terms of this loan have not been disclosed, but it is likely to cost RIFC £1m per annum in fees and charges.


What can be done?

One option is for the company to engage in a deeply discounted rights issue.


What is this and what does it achieve?

A deeply discounted rights issue is an offer to existing shareholders to invest in RIFC in order to provide additional finance. Why deeply discounted? Most companies raise finance in a normal rights issue at a 10% to 15% discount.

Given the state of the company’s finances, and lack of alternative options, I would suggest that the shares may be offered at a very substantial discount of over 50%.


When would this happen?

With extra finance being offered by directors of c £1m, until October 2016, this may enable the company to complete the season, and raise monies from the renewal of season tickets. Some money will start to be received within the next three months. Consequently, RIFC may consider launching this rights issue in November 2016, and post the publication of the results for the year to June 2016.


What would be the terms involved and what are the financial implications?

On a broad-brush basis, RIFC could announce a 2:1 rights issue at 10 pence per share.

RIFC currently have 81.5m shares in issue. A 2:1 issue would result in 163m shares being issued, which would result in raising £16.3m before expenses.

A prospectus would be required, and given the scrutiny necessary because of past history, court cases and “emphasis of matter” statement in the accounts (£2.5m), it is critical that full due diligence is carried out from a legal and accounting perspective.

A prospectus is very expensive; it would cost in excess of £1m.

Assuming the directors underwrite this issue at no cost, it is conceivable that this may raise £15m net.


Who in their right mind would subscribe?

At present, the directors have loaned either £3.75m or £5.25m, depending on whether they loaned a further £1.5m in the recent round of finance in which the Hong Kong-based investors were reportedly involved. Assuming the larger amount of £5.25m, this will form part of the underwriting as I assume that this was always going to be converted to equity in any event. To put this in context, £5.25m equates to over 20% ownership of the enlarged shareholder base.

Mash, Easdales, and institutional shareholders account for about 25% of the shareholder base. I assume that they would not want to dilute their holdings so they would contribute some £4m.

That leaves about £7m to find from other investors.

I understand that the ‘Rangers First’ shareholders have offered to invest in RIFC in order to own more shares. So assuming that they buy their rights, and also offer to underwrite some of the issue, they could possibly raise c £3m.

Should the Hong Kong investors swap their loan of £6m, (£5m plus costs), then the monies can effectively be raised.

Should they wish to receive cash, then the onus will be on the RIFC board to find another investor to fund the shortfall in the event that the other shareholders do not take up their rights.


What does this mean for the original investors?

Those that invested at 70p per share in the IPO will now have a share price ex-rights (after the issue of new shares), of 15p.  A loss of 80% on their original investment after investing more monies.


How much money is left for investing in the club?

Not a lot is the honest answer; it has just bought some time before another round of finance is required.

Talking through the numbers as follows. £16.3 m is raised gross but £15m net after paying for the prospectus.

The directors’ loan of £5.25m is converted to equity, but no new money raised here, so we are down to £9.75m.

The Hong Kong investors’ investment of £6m, £5m plus finance costs, leaves a residual balance of £3.75m for investing in the club. Assuming there is no dramatic downsizing of the business, they will be lucky if this some gets them through to June 2017.


What is Prognosis for RIFC?

Unless the club restructures its business by cutting back on substantial costs of running the training ground and makes further cost cuts in the football squad, the uplift in season ticket sales and gate receipts will make it very difficult for RIFC to achieve breakeven. I am informed that the money that could be realised from player sales is not significant. I also note that there is no provision in the accounts for any legal costs, which in themselves could be substantial. The directors have highlighted in the accounts that there will be a substantial investment at Ibrox and the Auchenhowie training facility. It is difficult to see where these funds will come from. All these factors point towards the need to raise fresh finance within a year of this deep discounted right issue.


I hope you found that useful. It is worth re-stating that he wouldn’t know the difference between a fullback and a corner flag. Moreover, I doubt he would be that excited if you offered him free tickets to the Champions League final.

However, he is a top numbers guy, and he has done something that the stenographers refuse to do on matters Ibrox.

Just like the outsiders in ‘The Big Short’ he looked.

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