The relegated club have raised �23m in player sales but are less clear on their other sources of finance following the arrest of their principal shareholder, Carson Yeung
Birmingham City have waited 50 years to play in Europe, so supporters would ideally be welcoming Braga's visit on Thursday without the overhanging angst about Blues' financial perils and Hong Kong money-laundering charges against Carson Yeung, the club's 26% shareholder. It is still unclear whether Yeung will even be permitted to attend; Chinese state prosecutors are in a Hong Kong court on Wednesday morning challenging the relaxation of Yeung's bail conditions which allow him to travel to England.
"The charges relate to money laundering," Yeung's lawyer, Clive Grossman, confirmed to the Guardian. Yeung, he said, intends to plead not guilty to the charges that he handled around �60m that prosecutors claim was the proceeds of crime. "No real basis has been suggested for the so-called dirty money," Grossman said, "other than it looks suspicious."
Birmingham International Holdings (BIH), the company registered in the Cayman Islands tax haven, listed on the Hong Kong Stock Exchange and which bought Birmingham City in 2009, has "taken steps to ascertain" the position and "so far as it is aware" the charges against Yeung, its most prominent shareholder, "do not relate to the company nor to Birmingham City".
Whether that proves to be true remains to be seen. However, Yeung's prosecution has coincided with a greater need to fund the club, which was already short of money before the bracing shock of relegation. Last year's accounts, which showed Birmingham lost �14m in 2009-10, stated the club needed �10.5m to keep "within its agreed banking facilities" even if it survived in the Premier League; that was after Yeung had already lent the club �15m.
In accounts for the six months to last December BIH said it could continue as a going concern only because it planned to raise money via share issues and a HK$150m (�12m) credit facility secured on Yeung's "private property located in Hong Kong".
Peter Pannu, the Hong Kong barrister and former policeman who was appointed Birmingham City's vice?chairman and most senior executive after the takeover, said in April of the club's financial position: "With the continued support of Carson Yeung we do not envisage any foreseeable problems."
Following Yeung's arrest in June no further loans from him have been announced, to the club or its holding company. The planned share issue was only partly successful, then BIH announced it had borrowed HK$80m from Inkatha, a company based in another tax haven, the British Virgin Islands, at a punitive 12% interest. Inkatha, BIH said, is owned by Yang Yuezhou, who was introduced as the 41-year-old chairman of a property development company in Qinghai, a remote region in north-west China.
There has been little further explanation of who Yang is or how he fits in, except for a list of public bodies on which he sits, including the Qinghai committee of the Chinese People's Political Consultative Conference, an advisory body dominated by the Chinese Communist party. Yang, the company said, has "over 19 years' experience in property development and corporate management".
Not much of this has been communicated directly to Blues' fans in Birmingham anxious to understand how deeply the last, contradictory season ? victory over Arsenal in the Carling Cup final followed by relegation ? has landed them in financial mire. It is not yet clear whether Yang's �6.5m loan is instead of or in addition to another loan from him, for almost exactly the same amount, announced in principle on 2 August. That proposed loan, for HK$79.5m, was to be convertible by Yang into shares giving him 14.06% of BIH. Proportionately that values the holding company at �45.5m, just over half the �81.5m the company paid for City, then majority-owned by David Sullivan and David and Ralph Gold, two years ago. The convertible loan from Yang, at 5% interest, has not yet been completed.
It was organised, and Yang found as a lender, by Kingston Securities, a financial firm that underwrote the takeover of the football club. Kingston is owned by Pollyanna Chu, the chief executive of the Golden Resorts casino in Macau, now a prime gambling centre.
In August's proposed loan announcement the holding company's financial travails were itemised, acknowledging that HK$299m which they had intended to raise largely to fund City was not ultimately achieved. Only HK$136m was raised; the remaining planned HK$163m placing of shares with investors "was not completed and lapsed". The company said it had used most of the �11m "for repayment of a bank loan facility in the UK", and that HK$128m, intended for "general working capital for its UK operation and financial support to Birmingham City Football Club" was never raised.
Although Premier League parachute payments have risen to �16m for two years and �8m for the two after that, City earned �40m from broadcasting alone last season. The response to this financial cataclysm was for Pannu to oversee an exit of players, including Cameron Jerome (�4m to Stoke), Craig Gardner (�6m to Sunderland), Roger Johnson (�7m to Wolves) and Scott Dann (�6m to Blackburn), the release of Kevin Philips, Barry Ferguson and Lee Bowyer and the loan of Ben Foster to West Bromwich Albion.
That scythe brought in �23m in transfer fees and saved millions off the club's wage bill, leaving Chris Hughton, who arrived as manager after Alex McLeish's defiant move to Aston Villa, to marshal a slimmed-down squad. City had to provide detailed budgets and future financial projections to the Football League and, via the Premier League and Football Association, to Uefa in order to be awarded their licence to play in the Europa League. Pannu is understood to have promised the authorities in the summer that the club would sell players to balance the books, and they currently accept that the action has been sufficiently tough.
The rocky financial position, and the auditors' caution in last year's accounts that the shortfalls raised doubt about the club's ability to continue as a going concern, means City are subject to close scrutiny for the Uefa licence and must submit accounts again at the end of October. The Football League, wearily accustomed to relegated clubs from the Premier League suffering financial difficulties even while their parachute payments skew competition in the Championship, is watching to see whether Birmingham will rally, or crash as the next crisis club.
"Fans were largely happy to ignore the financial structure and complex ownership arrangements so long as we had a modicum of success," said Chris Sanderson, spokesman for a fans group now forming a supporters' trust. "However, relegation, the exodus of manager and players and the arrest of our owner has led to disquiet. We want to build fan influence within the club."
None of this was quite in the prospectus when Yeung, the source of his fortune never crystal clear, arrived as the public face for the 2009 takeover and unveiled grand ambitions for the Premier League club ? based, famously, on expanding Birmingham City's "brand" into China.
Source: http://www.guardian.co.uk/football/blog/2011/sep/13/china-crisis-birmingham-city-europe
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