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Sports Direct to rely less on Mike Ashley credit Sports Direct to rely less on Mike Ashley credit
(about 1 hour later)
Sports Direct, the sportswear retailer, is facing higher borrowing costs after deciding to back away from a controversial loan facility provided at favourable rates by its billionaire founder Mike Ashley.Sports Direct, the sportswear retailer, is facing higher borrowing costs after deciding to back away from a controversial loan facility provided at favourable rates by its billionaire founder Mike Ashley.
The retailer - which has seen its shares almost halve since December following poor trading announcements and Guardian revelations about pay and working conditions - saw its stock market value drop by another 3% on Friday morning. The company said it is making the move to avoid further criticism over related-party transactions - essentially deals with Ashley who owns 55% of the company. The stock market value of the retailer – whose shares have almost halved since December following poor trading announcements and Guardian revelations about pay and working conditions – dropped by a further 3% on Friday morning. The company said it was making the move to avoid further criticism over related-party transactions – essentially deals with Ashley, who owns 55% of the company.
Since May 2014 Sports Direct has used a revolving credit facility with several banks and the overdraft was recently increased to an upper limit of £788m. The interest rate on the debt rises when more than a third of the facility is used, meaning higher charges when Sports Direct borrows more than £263m. Since May 2014, Sports Direct has used a revolving credit facility with several banks and the overdraft was recently increased to an upper limit of £788m. The interest rate on the debt rises when more than a third of the facility is used, meaning higher charges when Sports Direct borrows more than £263m.
To avoid the higher interest charges Sports Direct instead used a £250m loan facility provided personally by Ashley, as the “rate of interest payable on this facility is circa 50% lower than that payable on the [bank facility], and does not attract arrangement fees or commitment fees”. While the arrangement has saved the company around £1m, shareholders have always disliked the deal as it appears to allow Ashley to tighten his hold on the company. To avoid the higher interest charges, Sports Direct instead used a £250m loan facility provided personally by Ashley, as the “rate of interest payable on this facility is circa 50% lower than that payable on the [bank facility], and does not attract arrangement fees or commitment fees”. While the arrangement has saved the company about £1m, shareholders have always disliked the deal as it appears to allow Ashley to tighten his hold on the company.
Sports Direct said: “In the coming months Sports Direct expects its borrowing requirements will be consistently in excess of £263m. It has been decided that it is in the best interests of the group and its shareholders to avoid further criticism at this time.Sports Direct said: “In the coming months Sports Direct expects its borrowing requirements will be consistently in excess of £263m. It has been decided that it is in the best interests of the group and its shareholders to avoid further criticism at this time.
“Accordingly the group will not draw down from the [Ashley loan facility] in the foreseeable future, which will lead to an increase in the overall cost of borrowing.”“Accordingly the group will not draw down from the [Ashley loan facility] in the foreseeable future, which will lead to an increase in the overall cost of borrowing.”
Shares in Sports Direct were trading down 3% to around 386p on the news on Friday morning. Shares in Sports Direct were trading down 3% to about 386p on the news on Friday morning.
In December, before the Guardian revealed that temporary workers at Sports Direct were receiving effective hourly rates of pay below the minimum wage, the shares were worth around 700p each. The company subsequently announced a pay rise for its staff, which was dismissed as a “PR stunt”. In December, before the Guardian revealed that temporary workers at Sports Direct were receiving effective hourly rates of pay below the minimum wage, the shares were worth about 700p each. The company subsequently announced a pay rise for its staff, which was dismissed as a “PR stunt”.