4.8 and rising

MIH, the Irish Republic connection and Lloyds






Our thanks to Victor Arbuckle from Celtic Minded for today’s piece on the evermore confusing issue of ownership and control at Rangers.  While not directly related to our own challenges, this is a salutary lesson in what can happen when financial problems creep up on football clubs:

Murray International Holdings Ltd (MIH) have submitted an AR-01 file to Companies House.  This is a mandatory filing and is updated annually to provide information about the share capital of a company.

If viewed with just a cursory glance, Sir David Murray appears to retain 70% ownership of the voting shares, and to control the company.  However, a closer look provides a very different insight.  He appears to have lost control of the business which he named after himself and built from the ground up.  His shareholding in this company formed the basis for the bombastic estimates of personal wealth that have littered Scotland’s newspapers for over a decade.

Even for those with an eye for minutiae, the complex web of off-shore trusts into which he has placed the ownership of his MIH shares can be mind-numbing.  To cut a long story short, 95% of David Murray’s MIH shares have been transferred to a company called IFG Holdings (CI) Ltd.  This is an offshore trust company which is one of many created by the Irish Republic-based IFG Group.  Among other things, offshore trusts can be difficult for tax inspectors and litigants to pursue.

It is fascinating to learn that one of the directors of the company that today nominally owns Rangers FC plc (through its majority holding in MIH) is a citizen of the Republic of Ireland, Declan Kenny.  Rangers FC have come a long way under Sir David Murray.  Prior to Murray’s involvement, Declan would have been an unlikely trialist at Rangers.  Today, Declan nominally owns the club!

The idea of one of Scotland’s best known businessmen ’caching’ his shares in one of Scotland’s best known businesses in an offshore trust provides food for speculation about his fears for the future. While it is impossible to guess David Murray’s true reasons for placing his MIH shares in a trust, it is not too difficult to imagine that he fears the worst regarding Rangers’ tax case.  If Rangers lose the case for the amounts HMRC are claiming, the club would almost certainly have to file for administration.  Is it possible that Sir David fears for his personal wealth in the blowback of such an event?

However, what is really interesting about the recent filing is the revelation that Lloyds Banking Group’s private equity arm, Uberior Equity Ltd, not only owns 30% of MIH’s voting shares, but holds 165 million convertible preference shares.  MIH currently has approx. 17.5 million shares outstanding.

Therefore, if Lloyds choose to exercise their conversion rights, the preference shares will become voting shares and Sir David Murray’s shareholding would be diluted to just 7%.  Prior to this, these preference shares will enable Lloyds to take dividend income from any free cash flow generated.  This development puts Lloyds in control of MIH in everything except name.

It is actually a very shrewd solution to the MIH problem for Lloyds.  It gives them all of the levers they need to control the business without having to consolidate MIH’s accounts with their own.  So rather than have their own annual financial results damaged by further bad news in the UK commercial property sector, they can keep these assets “off balance sheet” until such time as they can be sold or consolidated to show a healthy profit.  Having borne almost all of the risk of Sir David’s foray into the property market, they may feel entitled to almost all of the future gains should a profit eventually become realisable.

With the recent share transactions to cleanse the MIH balance sheet of assets related to another of David Murray’s vehicles for funding Rangers (MSL technically owed MIH £60m but had no income and no possibility of ever paying this money) MIH now owns about 87% of Rangers FC.

So, taking this altogether, when Walter Smith says that “Rangers are being run by the bank” it is no longer just a simplistic way of saying that they have to do what the bank manager says- it is true in everything but name and can become literally true at the drop of a hat.

David Murray now effectively has no say in what happens at Rangers and the ability of the bank to dilute him down to just 7% ownership of Rangers’ parent company makes him yesterday’s man.  The AR-01 form does not specify any conditions around converting the preference shares to voting stock, but it seems unlikely that Lloyds put would barriers in their own way.