'Bank of Vlad' to write off £12m Hearts debt

JUST under a third of Hearts' debt is to be written off after Vladimir Romanov's investment company announced today that it is to swap it for a bigger share in the club.

Under the plans by Ukio Banko Investicine Grupe (UBIG), £12 million that it is owed by the Gorgie club will be written off in return for 34.2 million newly-created shares.

It would mean that UBIG, which is chaired by Mr Romanov, will see its stake in Hearts increase from around 82 per cent to over 95 per cent.

Club officials say the deal will smooth the way for the proposed £51 million redevelopment of Tynecastle Stadium, by making it easier to borrow more money.

Hearts said that the proposals confirm UBIG's financial commitment and "long-term" interest in the club, following recent reports that Mr Romanov may walk away.

The proposals, which require shareholder approval, would see overall debt at the club reduced from £36.5m to around £24.5m.

It will also result in annual interest charges on the debt reducing by £600,000.

Roman Romanov, chairman and chief executive at Hearts, said: "UBIG and its chairman, Vladimir Romanov, have a considerable long-term interest in Hearts as a leading professional football club based at Tynecastle Stadium.

"The directors believe the current proposal to convert £12m of debt into equity demonstrates the strength of UBIG's continued financial commitment to Hearts."

Club officials also said that the deal will accelerate the point at which Hearts may return to profitability – although officials at the club were not willing to give an indication of any potential time-scales or targets.

The deal also reveals for the first time the full extent of Hearts interest payments.

It has been paying £1.8m a year to Ukio Bankas in interest, although that will now reduce to around £1.2m. However, it is thought the payments are at a favourable interest rate, lower than any that could be offered by a UK commercial bank.

In a statement to the Evening News announcing the plans, the club said: "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.

"The conversion allows Hearts to benefit from a much stronger capital position and provides opportunities to raise external funding for the redevelopment of Tynecastle Stadium.

"The directors of Hearts are also exploring what additional measures may be taken to further improve the financial situation of the company."

Despite the reduced debt, other shareholders' share in the club will be diluted as a result of the 'debt-for-equity' deal, which sees UBIG pay 35p for every new share.

Shareholders will now vote on whether to accept the proposal at an extraordinary general meeting (EGM) on July 31.

It is thought this will be a formality though, as although the move requires 75 per cent approval, UBIG already accounts for 82 per cent of shareholders.

Mr Romanov said: "The directors consider that the terms of the proposed debt-for-equity conversion are fair and reasonable insofar as the company's shareholders are concerned and will, if effected, promote the success of the company for the benefit of its members as a whole."

Alex Gowans, chairman of the Heart of Midlothian Shareholders Association, said: "When UBIG got involved with Hearts there were two alternative expansion routes – through debt or through equity. At the time, they decided they wanted to use debt to finance the development of the club.

"Since then, debt has risen from around £16m or £17m to about £35m-36m. That is unsustainable and has put a pressure on the balance sheet.

He added: "Although Hearts is a PLC, it is to all extents and purposes being run as a private company.

"The Hearts minority shareholders have an emotional attachment to the club and they want to keep that – while it is nice for them to see profit, it is not their main motivation for holding shares."