Hearts confirm proposal to write off £10m of club debt

HEARTS chairman Roman Romanov has confirmed that the club's owners plan to reduce its debt by £10 million through a debt-for-equity swap. Under the scheme, which requires a formal approval by shareholders at an extraordinary general meeting next month, Ukio Bankas Investment Group (Ubig) will buy 100 million new shares in the club at ten pence each.

"The directors of Hearts are pleased to inform shareholders that an agreement has now been reached with Ubig, conditional upon passing of the resolutions, to remove a further 10m of the current debt owed to Ubig by converting it into Ordinary Shares," said Romanov, son of Vladimir Romanov, who has a controlling interest in Ubig. "As before in 2008, when the company reached an agreement with Ubig to convert 12m of debt into equity, this will strengthen the company's capital position in keeping with Ubig's strategy for Hearts, whilst removing a considerable amount of the company's short term liabilities."

Ubig and a subsidiary company, HoM 2005, already own just over 95 per cent of the shares, making approval of the plan a formality when it is put to shareholders on 11 November. The 2008 debt-for-equity deal referred to by Roman Romanov also required the approval of shareholders at an egm, where the necessary motion was proposed and carried in just a few minutes.

The effective writing-off of 10m will take Hearts' debt down to around 25m, and is part of a longer-term strategy to make the club profitable. Besides improving the bottom line, the debt-for-equity scheme will also remove around 500,000 in annual interest payments from Hearts' balance sheet.

"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," a statement on the club's website read. "The conversion allows Hearts to benefit from a much stronger capital position.

"The directors of Hearts are also exploring what additional measures may be taken to further improve the financial situation of the company. Hearts shareholders will retain their existing number of shares and continue to be part of the club by retaining their rights to attend, speak and vote at general meetings of the company."

The plan to remove 10m from the club's debt is an important step in a bid to ensure Hearts comply with Uefa's forthcoming Financial Fair Play regulations. Under those regulations, clubs taking part in European competition will not be allowed to spend more than they earn over a three-year period. Although they will be applied for the first time in 2014, the three-year stipulation means that next season, 2011-12, will be part of the counting period.In other words, although Hearts do not need to break even next season, the smaller the debt they incur then, the easier it will be for them to break even over that first three-year period.