Sports Direct, the sportswear retailer, is facing higher borrowing costs after deciding to back away from a controversial loan facility provided at favourable rates by its billionaire founder Mike Ashley, reports The Guardian.
The stock market value of the retailer – whose shares have almost halved since December following poor trading announcements and Guardian revelations about pay and working conditions – dropped by a further 3 per cent on Friday morning. The company said it was making the move to avoid further criticism over related-party transactions – essentially deals with Ashley, who owns 55 per cent of the company.
Since May 2014, Sports Direct has used a revolving credit facility with several banks and the overdraft was recently increased to an upper limit of £788m. The interest rate on the debt rises when more than a third of the facility is used, meaning higher charges when Sports Direct borrows more than £263m.
To avoid the higher interest charges, Sports Direct instead used a £250m loan facility provided personally by Ashley, as the “rate of interest payable on this facility is circa 50 per cent lower than that payable on the [bank facility], and does not attract arrangement fees or commitment fees”. While the arrangement has saved the company about £1m, shareholders have always disliked the deal as it appears to allow Ashley to tighten his hold on the company.
Sports Direct said: “In the coming months Sports Direct expects its borrowing requirements will be consistently in excess of £263m. It has been decided that it is in the best interests of the group and its shareholders to avoid further criticism at this time.
“Accordingly the group will not draw down from the [Ashley loan facility] in the foreseeable future, which will lead to an increase in the overall cost of borrowing.”
Shares in Sports Direct were trading down 3 per cent to about 386p on the news on Friday morning.
