The view from the other side of the Hedge Fund

It is always a good idea to ask someone who knows more about something that you do.

I was puzzled about something in the Sevco saga recently.

Mr David Cunningham King stated last month that finding a new Nominated Adviser (NOMAD) for Rangers International Football Club (RIFC) was no biggie.

The stenographers took him at his word and The People were soothed that a new one would be along in a few days.

Now as the de-listing deadline looms some of us thought this was an issue, but we were wrong.

Well there you go.  All those companies that have gone to the trouble and expense of going public over the years have been doing it all wrong.

Had they been advised by a Sevco blogger, they would not have bothered.

They could have sold the same shares to the same people for the same price and saved themselves a fortune.

To assist me in finding a way through this financial maze I spoke to my chap in the Square Mile about all of this de-listing stuff.

He graciously took time out from tending to his Hedge Fund to answer my fairly rudimentary questions.

I hope you find them useful, because I certainly did.


Q: Why do companies list themselves on an exchange?

A: An exchange listing makes it easier to buy and sell shares issued by a firm to other people.


Q: Why does that matter if the company does not get any money for the sale of already issued shares?

A: The ability to resell shares creates a very large slice of the demand for shares in an Initial Public Offering (IPO) or a secondary offering. Few investors would buy shares where there was not a liquid market to sell them again. Make it difficult to resell shares and the value of those shares will invariably drop. This is called the liquidity premium.


Q: So many people who bought shares in RIFC at their IPO will find it difficult to sell their shares if the company is not relisted?

A: Yes. For fans who just want to own a slice of a beloved, if new, football club, this is probably not that much of an issue. Few fans bought in at the IPO to trade for a profit. However, even Dave King failed to warn them that they were really making a donation. They were buying shares in a publicly traded firm just two years ago and will not have expected delisting. It will be especially difficult for holders of small quantities of shares to move any of them at a meaningful price after delisting. For the financial investors who bought in hoping for a profit, delisting will just signify the end of a disastrous chain of events that has cost them all a lot of money. Holders of larger shareholdings might eventually find a strategic buyer looking to purchase controlling or blocking powers, but the price would be a small percentage of what most will have originally paid.


Q: Is the delisting bad news for RIFC the company?

A: In practical terms, no, but only because RIFC’s situation has been recently so dire that there was no chance of accessing capital markets for equity or debt any time soon. With only the most ardent of fans willing to lend to or buy shares in RIFC now, the AIM listing had become an irrelevant and a costly nuisance. If RIFC was a stable profitable business, delisting would take an easy source of additional capital off the table. As RIFC is not a stable profitable business, it can be argued that delisting simply does not matter in terms of the company’s survival.  Professional investors and pension funds would surely not be so stupid (or of such an IQ?) to make the same mistake again.

RIFC’s survival conditions are now much like those of the company it tries so hard to emulate. In Rangers FC’s 24 years under Sir David Murray, the club lost about £140m. Murray’s genius was in convincing people like Dave King and his friends at the Bank of Scotland to cover these horrendous losses. Unless there is a dramatic change in culture at Ibrox, RIFC will also have to find benefactors who are willing to endlessly pump in cash without a realistic prospect of seeing much of it returned. Only in years with qualification for UEFA’s Championship League tournament can Sevco, RIFC’s footballing arm, hope to make a profit. As they currently are struggling to get out of the SPFL Championship, it could be a long and exhausting road ahead.


Perhaps ‘exhausting’ could well become a word that defines RIFC.  It might come to pass that long before the newest club to play at Ibrox becomes an annual fixture in the Champions’ League group stages, it may well have exhausted the resources and patience of even their most generous and deep pocketed fans.

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