Bates gets the blues as Chelsea probe kicks off: ThePost.ie


TCH Archives > Sunday Business Post > 2003/07/27 > Bates gets the blues as Chelsea probe kicks off

Bates gets the blues as Chelsea probe kicks off
Sunday, July 27, 2003

By Stephen McMahon

The financial investigation into Chelsea Village, the parent company of Chelsea Football Club, is expected to raise a number of uncomfortable questions for chairman Ken Bates.

The investigation should not affect Russian billionaire Roman Abramovich's €216 million takeover of the club, or the recent €25 million purchase of Irish international Damien Duff.

Nevertheless, there is real concern that some investors were "misled" in the months before the takeover.

Abramovich was a godsend for Bates as, without his cash injection, the club's debts of stg»80 million could have forced the club into administration.

But the takeover has led to an investigation into the murky world of Bates' finances and the ownership of Chelsea Village.

The investigation by the Financial Services Authority (FSA), the London stock exchange's takeover panel, into "the nature and status" of some of the named share-holders in the club will lift the veil of secrecy covering Bates' former empire.

The unpicking of the financial web surrounding Bates and ChelseaVillage began last year. A US government fraud investigation focused on Stanley Tollman, a former director of the club and long-time friend of Bates. The investigation unearthed layers of trusts and offshore companies in the Cayman Islands and Guernsey connected to Tollman and ChelseaVillage.

Before the takeover, Bates held 29.5 per cent of Chelsea Village - just below the 30 per cent threshold allowed without having to make an offer for all the other shares, as required by Alternative Investment Market (AIM) regulations.

The FSA investigation centres on a further 15 per cent of shares, which it suspects were under Bates' control and were central to Abramovich's acquisition. Bates has rubbished the FSA probe and threatened legal action.

The shares were held in five trusts in Guernsey.They share the same address as that used by Bates' investment vehicle, the Virgin Islands-registered Mayflower Securities. Each of the five holdings was just under the 3 per cent threshold above which disclosure must follow.

Last year, Swan Management, which is bas ed in Guernsey, was forced to sell a 26 per cent shareholding in Chelsea Village after coming under the spotlight in the US investigation into Tollman. It has been widely speculated that Tollman had a beneficial interest in the trust.

Bates' acquisition of almost half of Swan's shareholding took his holdings to 29.5 per cent. The ownership of the remaining Swan shares is still unclear but Bates is the prime suspect, according to senior city sources.

Earlierthismonth, Abramovich was able to buy the necessary shares from six investment trusts in Guernsey, Cyprus, Mauritius, Cook Islands, Samoa and the British Virgin Islands, giving him a controlling shareholding without any dis cussions with shareholders other than Bates.

City experts are certain that all but one of the offshore companies bought their shareholdings from Swan Management last year.

Havering, one of the holding companies being investigated, is believed to have been acquired by Abramovich from the former Egyptian arms dealer Ashraf Marwan. The son-in-law of former Egyptian president Gamal Abdel Nasser, Marwan was involved with the club in the early 1990s during a turbulent period in its boardroom history.

In 1993, with Tollman and Bates, he was a founding partner of ChelseaVillage, the offshore vehicle set up to hold the club's assets after it nearly went bankrupt during a decade-long battle with local property developers. Marwan then disappeared from Chelsea Village and his shareholding only came to light last year during the FBI investigation intoTollman.

Bates' 29.5 per cent shareholding earned him more than €24 million in the takeover - an exceptional return on the stg»1 he paid for the business in 1982.

Abramovich, Russia's second-richest man, bought the controlling 50.1 per cent stake in Chelsea from various shareholders, including Bates, for 35 pence a share in cash, a 15 per cent premium on the closing price the day before the takeover was announced.

In a separate insider trading investigation, the FSA is looking at why Chelsea Village's share price doubled from 14 pence in April to 28 pence at the start of July before Abramovich's takeover.

It jumped a further 15 per cent the day before the deal was announced.

The Russian's investment saved the club, as Bates has been unable in recent years to revitalise Chelsea Village's financial performance, despite a jump in turnover last year from €32 million to €172 million.

Despite increased attendances at home matches, better performances on the pitch - which included qualification for this season's Champions League - and higher merchandising sales, the company's pre-tax losses grew from €3.7 million to €19 million last year.

It was Chelsea Village's property portfolio of apartments and hotels built beside the ground - originally seen as the club's financial saviour - that was dragging the club into the financial abyss. The crippling annual interest payment of €10.4 million on a €111.6 million Eurobond is credited with eventually forcing Bates to sell.