Chinese government ready to fund Liverpool takeover

Posted Thursday, August 05, 2010 by theguardian.com

Chinese government ready to fund Liverpool takeover
The China Investment Fund has been busy raising funds.

The Chinese government fund represented by Kenny Huang has spent the past fortnight raising precisely the amount of cash required to finance a bid for Liverpool. Sources have confirmed to Digger that the China Investment Corporation, the sovereign wealth fund to the world's most populous nation, is the organisation being fronted by Huang, who yesterday admitted interest in bidding for Liverpool.

In a series of trades since 19 July, CIC has sold $558m of shares in Morgan Stanley, equating to £351.4m. That sum is equivalent to Liverpool's debt to the nearest decimal place, and is exactly the number insiders say has been quoted to interested parties as the sale price.

China Daily, the English-language arm of the Chinese state media, reported yesterday: "China Investment Corp, the Chinese sovereign wealth fund that bought a 9.9% stake in Morgan Stanley in 2007, sold $90.5m of shares in the investment bank on 30 July, bringing the total amount divested in the last two weeks to about $558m."

Although sovereign wealth funds have enormous values of assets under management, cash is generally tied up in equity and bond markets. This requires liquidation by share sales before major new investments can be made. It is therefore hugely significant that the £351.4m number is also equivalent to Liverpool's debt, suggesting that CIC is shifting its assets ahead of an offer for the five-times European Cup winners.

It also indicates that despite the ambitions of the Anfield club's chairman, Martin Broughton, to generate a return for Tom Hicks and George Gillett, China is refusing to reward them for their three-and-a half-year ownership of the club. The Americans' capacity to dictate terms is further reduced by the fact that there are few other credible bidders preparing to compete with Huang and CIC.

Even those involved in the sale process have dismissed the announcement yesterday from Yahya Kirdi, the former Syrian footballer with business links in Canada, of his intention to compete with Huang for Liverpool. Kirdi has previously talked of his interest but is said not to have meaningfully pursued it, but his interest could raise the price that current owners are looking for. The Rhone Group has also re-emerged as a possible interested party. But although it is regarded as being financially capable of mounting a bid, the private equity firm has come to the table before, having looked at a minority-stake investment in March. But it did not go through with the deal.

Huang confirmed for the first time yesterday he had contacted Liverpool's brokers in the sale – who together are Broughton and Barclays's investment-banking division, Barcap – to "register interest". He did state he "has made no formal bid", however CIC's cash-raising exercise demonstrates it is in a position to make an approach at any time.

In that event the red half of Merseyside might be concerned about the impact of direct investment from the Chinese government in their club. But in anticipation of negative reaction to its world-wide investment activities, CIC's website states: "CIC strives to contribute to the prosperity and development of local economies.

It adds: "CIC usually does not seek an active role in the companies in which it invests nor attempts to influence those companies' operations. CIC seeks long-term, stable, sustainable, and risk-adjusted return."

Although the message of prudence, at a time when CIC's dumping of £531.4m of Morgan Stanley shares has conspicuously not generated any money for transfer activity, might dishearten fans, it should not be interpreted as a lack of team investment. CIC would be purchasing a debt-free club and would be capable of taking out smaller, more affordable loans to finance team strengthening this summer.

And after the years of chaos associated with the unsustainable debt run up under Hicks and Gillett, that would no doubt be a welcome relief to Liverpool fans, as will the fact CIC is happy with Roy Hodgson being the manager.

Dealmaker Kops it

The ubiquitous football dealmaker Keith Harris popped up on telly yesterday to give his view on Liverpool's sale situation, amid talk that he is representing an unknown bidder. He claimed the club was worth more than the reported £300m-plus sale price, which if you think about it would be rather an unusual statement from someone representing a potential buyer. Could it be that he is instead acting for the current owners to achieve the a better price for the club? Some think so, and he did not respond to Digger's message yesterday asking him whether he was involved. But if he is working for Liverpool, he is not doing it wholeheartedly. Throughout his interview yesterday the 1990s-edition Manchester United shirt that sits in pride of place in his office was in full view.

Leeds mystery goes onWant to know who owns Leeds United?

New Football League rules came into force yesterday demanding all clubs declare who is their ultimate beneficial owner on their websites. The Elland Road club became something of a cause célèbre after their anonymous shareholders inexplicably voted in favour of a 1p-in-the-pound settlement for their debts that would have handed control to Ken Bates during Leeds's 2007 insolvency. So Digger excitedly clicked on the ownership section of Leeds's website yesterday, fully expecting Bates to be revealed as the owner. And it was only to be confronted by 300 words of impenetrable nonsense about offshore "independent discretionary trusts" that is too convoluted even to explain here. Put it this way: despite the new rules, still no one knows who owns Leeds United.

Principles, anyone?

After kicking up a stink about the inequity of it all, Football League clubs yesterday ratified the Premier League's solidarity package that will lead to relegated clubs receiving £48m over four years. The clubs in the Championship complained that with year-one and year-two relegated sides each receiving £16m, there would be a distorting effect on competition. But when the matter came to a vote principles were discarded as chairmen pretty much unanimously supported the Premier League's deal. Digger cannot wait to analyse 2011 annual accounts to discover whether any directors of the other Championship clubs, who will each receive a £2.2m sweetener after yesterday's vote, are now looking forward to a pay rise.