Hearts' £12m debt cut plan is welcomed

HEARTS' owner Vladimir Romanov's plan to reduce the club's debt by £12 million has been given a cautious welcome from a leading football business analyst.

Romanov's attempt to consolidate the Tynecastle club's financial position will begin with a 'debt for equity' plan which aims to remove 30 per cent of Hearts' debt. The proposal will see overall debt at the club reduced from £36.5m to around £24.5m. It will also remove the burden of £600,000 of interest per annum.

If the motion is passed at an extraordinary general meeting at the end of this month then a £12 million portion of the debt due to Ukio Banko Investicine, Romanov's investment company, will be converted into 34.2 million newly created ordinary shares.

"The debt for equity plan provides further evidence of UBIG's aim to continue to develop Hearts on and off the field, and, together with continued cost efficiencies, help the club reach profitability," said a statement released by the club yesterday.

Charles Barnett, a partner at leading accountancy firm PKF, described the move as "good news" for Hearts supporters, although he sounded a cautionary note when pointing out that no new money was being injected into the club. He also said it was worth remembering that, while it improves the club's financial position, there is little sense in rejoicing at being just £24 million in debt.

"It is good news," said Barnett. "It is taking debt from the Hearts balance sheet. And it is saving the club in excess of £600 000 worth of interest. But it has to be tempered by the fact this is not new money. It improves the strength of the club, albeit possibly from a weak condition, if one can put it that way."

The converting of £12 million of debt into shares will increase Romanov's stake in the club from 82 per cent to 95 per cent and dilute further the collective stake of individual shareholders from around 18.5 per cent to less than five per cent.

However, shareholders have welcomed the move. Alex Gowans, chairman of the Heart of Midlothian Shareholders' Association, said it was "excellent news" and helped stem nagging doubts that Romanov was planning to walk away. "It has really reinforced Romanov's long-term stance on the development of Hearts," added Gowans.

Former Hearts chairman Leslie Deans also believes the initiative is evidence that Romanov is in it for the long haul.

"I would like to see the club's debt lower but this is a sensible way forward and demonstrates commitment from the majority shareholder," said Deans.

"Not only does it reduces the club's debt, it is a demonstration of faith. It sends an important message to the fans."

Barnett, a partner at PKF accountants, agreed the move was not one which suggested Romanov was preparing to cut his ties with the club anytime soon.

"You wouldn't do this if you were looking to sell," he said. "I am sure there are many who will choose to have a go at him. But I think people have to stand back and have a look at what he is trying to achieve, certainly with this announcement.

"Other football clubs in Scotland have done similar exercises before," continued Barnett. "Sir David Murray did something similar with Rangers, with a larger amount of debt. But the principle is the same.

"While it is positive there is still a long way to go in terms of returning to profitability. It's only one factor in why the club loses money. In football, as in any other business these days, you have to balance your expenditure."