Surrey CCC pitches 5.5% bond
Raising money to develop one’s facilities can be a substantial challenge. In the case of organisations such as county cricket clubs, there is a ready-made crowd that regularly attends matches and keenly follows their progress. So who better to appeal to for funds to develop the ground?
That may have formed part of the thinking behind Surrey County Cricket Club’s recent issue of a £3.5m mini-bond which is designed to raise funds to complete the modernisation of the club’s Kia Oval cricket ground.
In fact, Surrey is following on from Lancashire County Cricket Club’s mini-bond issue of last year. Demand for the issue was such that the offer had to be extended. Surrey may be hoping for something similar, except that its 5.5 per cent gross a year for five years is lower than Lancashire’s 7 per cent gross a year for seven years. Still, such things do have an implicit element of appeal to the heart more than the head.
In a letter to members included in the offer document, Surrey CCC chairman Richard Thompson said turnover had increased for the club since the modernisation of the Kia Oval ground began with the completion of the OCS stand in 2005, from £10.5m in 2003 to £30m in 2013.
The proceeds of the bond issue are to be used to update and improve facilities at the Kia Oval, including a new stand and the addition of 1,300 seats. So, Mr Thompson’s evidence of rising turnover from previous redevelopment hints that the new funding will generate even more.
Unsurprisingly, first choice goes to club members who are at the front of the queue. Then, after 14 September the issue will be offered to the club’s wider supporter base. The minimum investment is £2,000 and the maximum investment is £250,000.
However, in common with other mini-bonds, the Surrey CCC bond is non-convertible and non-transferable so it cannot be converted into company equity and ownership cannot be transferred to anyone else. So, unlike retail bonds which offer investors an escape route through listing on the London Stock Exchange’s Order Book for Retail Bonds, the capital of Surrey CCC bond investors is effectively locked in until redemption in 2020.
Another feature this issue shares with other mini-bonds is that it has no risk rating. In the absence of this, one has to make an assessment of the club’s financial performance and prospects. This has recently been good, with profits for the past three financial years – despite Surrey having been relegated from division one of the County Championship to division two in 2013.
The club also benefits from hosting England Test cricket matches. However, it does not rely on income from cricket alone. Gate receipts are dwarfed by the club’s income as a conference and events centre, which last year stood at £4m.
Before making an application, potential investors have to complete an ‘appropriateness questionnaire’, as demanded by the FCA. The issue document ‘strongly recommends’ that potential investors discuss the matter with an IFA prior to investing.
The offer closes on 28 September. The issue will go ahead provided at least £1m has been raised by then.
James Priday, director of Devon-based IFA Prydis Wealth, said: “I was involved in the construction of a mini-bond for a local rugby club, the Exeter Chiefs. It raised £8.5m, paying 7 per cent a year for seven years. So, 5.5 per cent does seem a bit on the low side.
“Any investor must do due diligence on this. Potential risks may include delays in the construction of the new stand which may hit revenues. A lot depends on what sort of investor you are and how much you have to invest. For instance, sums of £10,000 and more are only appropriate for high net-worth investors to consider. In any case, this type of asset should be no more than 5 per cent to 10 per cent of investable assets. But it’s probably safer in cash.”
Stephen Spurdon is a freelance journalist
