Leicester City’s Thai chairman, Vichai Srivaddhanaprabha, has effectively wiped out the £103 million he was owed by the Foxes in a deal known as a ‘debt-for-equity swap’. In other words he’s exchanged the debt he was owed for shares in the club. The family made their money through international duty free shops.
Leicester City’s Thai chairman, Vichai Srivaddhanaprabha, has effectively wiped out the £103 million he was owed by the Foxes in a deal known as a ‘debt-for-equity swap’. In other words he’s exchanged the debt he was owed for shares in the club. The family made their money through international duty free shops.
The move allows City to make a £8 million loss this season – the maximum limit permitted under the Financial Fair Play (FFP) rules, brought in to cut back on the excessive deficits which have been racked up by some clubs, including the Foxes. It also puts the club in better shape to comply with these rules in the future.
It had been thought by many the owner would only convert a portion of the debt into shares, because he would never want to rule out getting back at least some of the £77 million in loans he has put into the club. However, he has created 103 million new shares valued at £1 each and swapped them for his very large collection of IOUs. He’s also issued an extra 10,000 of these £1 shares, with the intention of buying them in the future.
This latter part of the deal allows him to pump £5 million into the club this season, and potentially another £5 million next season, without it being a loan. He would instead be making an investment in the share capital of the club. This process of investment is looked at more favourably by the FFP rules and allows City to make that £8 million loss this year without being fined or having a transfer embargo imposed.
The club lost £30m in 2011/12. If a loss of that size was repeated, the club would play the resultant £19m fine to charity.