29 August 2014

Groundhog Day: The Board Calls for Another Share Issue

By Peter Ewart | Contributor

The Rangers Board released a statement in regards to a potential share issue in RIFC plc on the 6th of August and today we have the details.

What is on offer?

A further 19.8m shares in RIFC plc are available through an Open Offer at £0.20 per share, a discount of 21.6% on the 28 August closing price, to all shareholders who held shares at 5 p.m. on the day.

Shareholders can buy 0.30185 new shares for every 1 share currently held, so if you bought 714 shares for £500 at the IPO you can buy 215 new shares at £43.

If all the shares are taken up then there would be 85.6m shares in RIFC plc. Essentially a 23% equity stake in RIFC plc is being offered to existing shareholders for £3.96m.

What is an ‘Open Offer’?

An open offer is the offer to existing shareholders to add shares pro-rata to their existing shareholding. It is not a rights issue – if you do not take up the offer then you cannot decide who does – therefore there is no tradeable or transferable right. Existing shareholders will have the ability to apply to buy more shares than their pro-rated amount through an Excess Application Facility.

What do the Board say?

Ultimately the Board say that they cannot offer you financial advice and neither can we at the CRO.

The fans do get a snippet of the 30 June 2014 year end position as far as cash goes – a cash balance of £4.3m, £2.72m of which was not immediately available as it is in Rangers Retail. (Compared to a cash balance of £11.2m 30 June 2013.)

The Board also say that a minimum of 15m of the 19.8m shares will have to be subscribed for otherwise: “the Company will be unable to pay its creditors as they fall due and the future of the Company will be uncertain; The Directors will immediately have to seek emergency financing which may or may not be available.”

That doesn’t need a translation.

The media have run stories of the Board seeking someone to ‘underwrite’ the share issue – to pick up any slack where existing shareholders do not wish to buy new shares. Mike Ashley amongst others were mentioned, but it does not appear that anyone has stepped forward.

The Board members who do own shares (Nash, Easdale, Crighton and Somers) have said that they will take up their offer of new shares.

It will be interesting to see if we get a reaction from the original investors (BPH, Margarita) and the IPO Institutional investors (Artemis, Hargreave Hale etc).

I own shares, what do I need to do?

It is up to each shareholder what to do next. If you own shares via a share certificate you will be contacted. If you own shares electronically (through a nominee account having bought through a broker or a bank) then if you wish to participate you need to contact your bank or broker to discuss arrangements.

What will the proceeds cover?

The outlook is stark. The £3.6m will be used to pay part of the £1.5m loans from Easdale and Letham secured at the end of last season. Arguably, both could choose, or be offered, new shares instead of having the loans repaid.

The remainder, potentially as little as £2.1m, will be used as working capital – to cover everyday expenses of the business. Given our known operating costs that will not buy much additional time.

What happens next?

On the face of it, 23 percent of RIFC plc for £4m could look attractive. That view should be weighed against the statement that £20-30m in fundraising will be needed over the next three years. So it can be certain that it will not be the last call on shareholders to raise money – you would need to invest again in order not to have your shareholding diluted.

This share issue itself cannot really be described as an investment; it is repaying loans and plugging a funding gap in the very short term. More money will be needed before the end of the season and the Board have said they will need additional external funding before the end of the financial year (June 2015) and possibly before the end of the calendar year.

We definitely need to hear from the Board. Shareholders are being asked to make a decision without sight of the results for the year ended 30 June 2014 (although we can take it they won’t be good) and without sight of a funding plan after this share issue.

What is the deadline?

Time is very short: If they choose to subscribe the deadline for shareholders to have all their paperwork/monies sorted out is within a fortnight (12 September). I am sure we all will but there is little point in going back over the wasted money and spent opportunity of the last two years. 

Fans will ultimately pay for all of it (in every sense) in the long run, but let’s be honest: We knew that anyway. It's now a matter of how we get a meaningful say, and how quickly, for the hard earned money we spend. Each shareholder must look forward and decide how best to give the whole Club the overhaul it badly needs.