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Sports Direct to rely less on Mike Ashley credit Sports Direct to rely less on Mike Ashley credit
(about 5 hours 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 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. The company said the move was 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 after poor trading announcements and Guardian revelations about pay and working conditions – dropped by a further 3% on Friday morning but later clawed back some ground to end 0.5% down at 397p.
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 about £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 about 386p on the news on Friday morning. At the current share price Sports Direct looks unlikely to retain its status as a FTSE 100 company when the index is reshuffled next week.
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”. In December, before the Guardian revealed that temporary workers at Sports Direct were receiving in effect hourly rates of pay below the minimum wage, the shares were worth about 675p each.
Since then the group has been branded a “scar on British business” by the Institute of Directors, been the subject of a parliamentary debate after the former shadow business minister Chuka Umunna tabled an urgent question, and been rounded on by its own investors, including City hedge fund boss Crispin Odey, who described Ashley’s authority over other Sports Direct directors as “dangerous”.
The company subsequently responded by announcing a pay rise for its staff, which was dismissed as a “PR stunt”, as well as a review of all agency staff terms and conditions, which it said would be overseen personally by Ashley.