Sports Direct to rely less on Mike Ashley credit
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.
The company said the move was to avoid further criticism over related-party transactions – essentially deals with Ashley, who owns 55% of the company.
The stock market value of the retailer – whose shares have almost halved since December after poor trading announcements and Guardian revelations about pay and working conditions – dropped by a further 3% on Friday morning but later clawed back some ground to end 0.5% down at 397p.
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% 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.”
At the current share price, Sports Direct looks unlikely to retain its status as a FTSE 100 company when the index is reshuffled next week.
In December, before the Guardian revealed that temporary workers at Sports Direct were receiving in effect hourly rates of pay below the minimum wage, the shares were worth about 675p each.
Since then the group has been branded a “scar on British business” by the Institute of Directors, been the subject of a parliamentary debate after the former shadow business minister Chuka Umunna tabled an urgent question, and been rounded on by its own investors, including City hedge fund boss Crispin Odey, who described Ashley’s authority over other Sports Direct directors as “dangerous”.
All warehouse workers are kept onsite at the end of each shift in order to undergo a compulsory search by Sports Direct security staff, with the experience of the Guardian reporters suggesting this typically adds another hour and 15 minutes to the working week – which is unpaid.
The discovery raises questions of whether such practices are within the law relating to the minimum wage. Lawyers said that paying workers for going through compulsory security checks had never been specifically tested under European law, but they added that a recent ruling by the European court of justice on the working time directive, which related to technicians travelling to customers’ premises to install equipment, appeared applicable to the policies employed in Sports Direct’s warehouse.