Balu’s Bluff and UHY’s Unreality

UPDATED: I refer in this piece, as I did in the last one, to Mr Chainrai as an individual.  Strictly speaking I should refer to Portpin since it is that company, which he owns with Levi Kushnir, which holds the debenture on PFC’s assets.  Mr Kushnir is a less public figure though his involvement is just as great as Mr Chainrai’s.  Original post continues below.

I gave an example in my last post of the sort of genuine action supporters could take in order to compel Balram Chainrai to see sense in his dealings with Portsmouth FC.  He says at every turn how “reluctant” he was and is to be involved with the club, but also says he is determined to maximise his financial return on that involvement.  At every turn he is frustrated by the failings of others and promising to do something about it, but somehow things never seem to get cleared up.  We are still in a mess, and Mr Chainrai still holds his debenture against the assets of Portsmouth FC.

UHY Hacker Young, CSI’s administrators, are trying to sell PFC without direct regard to the issue of the Chainrai debenture.  Their purpose in doing this is simply to raise whatever funds are required to make up the shortfall to Chainrai remaining from the transaction in which CSI bought the football club.  Part of the arrangements CSI made in buying PFC was to buy out Chainrai’s debenture.  As I understand it there is no legal requirement in UHY’s function as administrators to settle the issue of the debenture (i.e. to require any purchaser to buy it out), merely to sell the ownership of the club for as much as they can.  The debenture is a matter between PFC or its new owner and Mr Chainrai; it is not of material importance to UHY’s task.

Now it would seem from some who have been in contact with UHY that quite absurd levels of proof-of-funds have been requested by them.  The Supporters’ Trust have mentioned a figure of £100m – a ridiculous sum.  Brian Howe has mentioned a couple of figures – £40m and £60m – again a far larger amount than any sensible valuation of the club, the value of Chainrai’s debenture, and other short-term liabilities combined.  It is not clear why UHY are demanding such amounts, because they won’t talk to anyone (apart from Joseph Cala).

The lack of consistency from UHY in dealing with enquiries is a worry.  It should be a worry to Mr Chainrai, who is keen to extract whatever value he can out of CSI’s administration.  You would think would welcome any and any expression of interest in the club.  What exactly is the club worth to him?

By the time we get to February 20th, it’s not worth anything really.  If the club is wound up, liquidators will sell PFC’s assets for whatever they can get and first of all deduct their own costs from the proceeds.  I say “assets”, in fact these don’t stretch beyond Fratton Park, because any player registrations are cancelled by the League in a liquidation.  If Fratton Park is put up for sale, it is of uncertain value to any purchaser in view of the planning guidelines the City Council have.  Any price of £1 upwards is realistic in the circumstances.  £17m?  Not a hope in hell.  Mr Chainrai will be facing disaster if  Portsmouth FC is wound up on February 20th.

So in real terms to Mr Chainrai, every day that PFC has not been sold since he caused CSI to go into administration is a day that he loses money.  I am not sure why UHY do not appreciate that.  I am not sure that UHY understand the reality of the situation at all.  I think anybody who offered Mr Chainrai £7m in return for exiting Portsmouth completely would find him happy enough.  As a loss-making business, PFC on its own isn’t worth anything unless Fratton Park is worth something.

You could buy Chainrai out for some way less than £10m, pay HMRC £2m or so to cover current debt to them, and as long as you can support cashflow while you reduce outgoings you would find a further £7m would finance PFC well beyond the end of the season and cover the debt to Sacha Gaydamak (he’d be happy to wait anyway, as another man with everything to lose in this).  Parachute payments cover the CVA.  If you got things in order quickly enough, that might be all the capital you need to raise until we get into the business of ground redevelopment.  There is no “mountain of debt” (@Pompeytrust please note) and there are no problems that can’t be solved in securing the future of PFC.

However, Andrew Andronikou said after the closure of the window that he was “unhappy” there had been no player sales, funds from which could have paid HMRC their outstanding sums.  Since the wage bill is so big that there will be a cashflow shortfall nearly every month, HMRC would be back again with another petition at some point in the near future, and there would be no way of selling players.  It would have been a pointless exercise, and it would probably have led to uproar from supporters and more trouble for UHY.  Portsmouth FC is not in administration, and UHY have no right to control the club’s operations or player trading in any case.  So what is Andronikou up to?  The more he treats PFC like a business in administration, the more likely the Football League will be to treat it in the same way.

There is a confusion as to what the UHY remit is, and what their objectives are.  It is not clear that they are likely to maximize Mr Chainrai’s return, since potential buyers find it hard so hard to establish contact with them.  We are months into CSI’s administration, and there is still only a vague list of parties whom UHY know to be interested in PFC – presumably none of these has been able to provide proof of whatever (seemingly variable and capriciously-determined) funds UHY require.

We’ve heard varying stories from UHY on the recent financial arrangements.  They have said they expected to raise funds  from the sale of North One Sports, another CSI business, who had a contract with the FIA to promote the World Rally Championship.  It will raise a wry smile on the lips of any Pompey supporter to learn that there was supposedly a rich Arab group about to buy NOS and secure its future as WRC promoter, but the deal wasn’t done in time and the FIA terminated the deal.  NOS collapsed as soon as the FIA acted, inevitably and predictably.

Mr Chainrai himself claims to have injected funds to pay the January wage-bill, although to date the club’s bank account still seems to be frozen.  Everyone will hope that Mr Chainrai has made good on this, and it is in his own interest to do so as much as the people who work for the club who have mortgages and rent to worry about.  He assured everyone before that he would cover any shortfall in PFC cashflow caused by CSI’s collapse and the result was the HMRC petition because they were still unpaid.  He won’t get any more chances to bluff HMRC.

So for now we must wait and see if UHY’s motives become any clearer, or their behaviour any more rational.  Clearly Pompey is a property of rapidly diminishing value, with a clear probability that it will cease to exist some time soon after February 20th.  It’s about time UHY were open with supporters, if necesary through the medium of the Pompey Supporter’s Trust, about the reasoning behind their actions so far and what their expectations are for the next couple of weeks.

Either the club is sold soon, or Chainrai supports cashflow until a sale and pays off HMRC, or it goes bust on February 20th.  The only other possibility is that parachute payment money is brought forward to keep the club going until the end of the season – because the fall-out to the Football League of Pompey going bust in two weeks is rather frightening if you remember that we’ve given West Ham important points this season.

I still feel PST and other groups should be more militant.  It seems we are ambling towards the precipice confident that some “Plan B” will arise while ignoring the chance to fight for “Plan A”.  None of the expressions of goodwill, MPs wringing their hands, 12th Man signatures, and so on guarantee the viability of a restarted PFC.  We should fight for what we already have.

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One Response to Balu’s Bluff and UHY’s Unreality

  1. bri208 says:

    very well thought out and written “mi lord”…cheers mush!!

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