Fraser quits Hearts boardroom in dismay at recent sackings

STUART BATHGATE
CHIEF SPORTS WRITER

STEWART Fraser, the finance director of Hearts, will resign from the club as soon as is practical. Writing in a Letter of Recommendation to shareholders in Hearts, Fraser advises them to sell to Vladimir Romanov, but also admits to disquiet about some of the decisions made by the majority shareholder and his associates in recent weeks.

Romanov, whose holding will rise to around 72 per cent when he completes the purchase of the stakes held by Leslie Deans, Robert McGrail, SMG and HBOS, is bidding to take his holding to over 75 per cent - a figure which would allow him to delist the club from the London Stock Exchange. Fraser's letter makes it clear that Romanov's continued investment is dependent on the achievement of such a figure by HoM 2005, a company wholly owned by the Ukio Bankas Investicine Grupe (UBIG), the offshoot of the bank in which the Lithuanian businessman has a major influence.

The dismissal of Phil Anderton as chief executive and the departure of George Foulkes, the chairman, left Fraser as the only independent director on the Hearts board, and therefore the only one able to comment on the share offer. His letter runs for four pages, in which he confirms he voted against Anderton's sacking and was saddened by the dismissal of manager George Burley.

"I am only too aware that events since the announcement of the Offer have both shocked and surprised many Hearts Shareholders and supporters," Fraser writes. "For my own part, I was unhappy with the departure of George Burley, and along with George Foulkes voted against the dismissal of Phil Anderton. George Burley had presided over a level of football success not experienced by Hearts for several years, and Phil Anderton had already made considerable progress in improving our commercial operations.

"None of this is to say that Hearts neither can nor will prosper under the ownership of UBIG. Nevertheless, in the current circumstances, I have reviewed my own personal position.

"I have decided that in time, I too will leave the club. I have, however, in recognition of my responsibilities as the only Independent Director left, also decided that I must remain as a Director for the immediate future, not least because there should still be someone on the Board to provide you, the Hearts Shareholders, with an informed recommendation as to how you should respond to the offer.

"I must inform you that after any date upon which the Offer becomes, or is declared, unconditional as to acceptances, I intend to enter into discussions with the Board regarding my departure from Tynecastle." Fraser's contract has a 12-month notice period, but he may try to negotiate an earlier exit.

The offer from UBIG gives details of the club's accounts to the year ending 31 July 2004, when its net debt stood at £19.621million. Accounts to this July are expected to be published this month, and Fraser gives some details of what should be published in them.

"The current working capital needs of the business are being met, but only through the provision by UBIG of additional short-term facilities currently amounting to £2.3m, which are repayable not later than 31 January 2006. In addition, I must inform you that, before the end of the period, Hearts is likely to have, at the peak, an additional short-term working capital requirement in excess of £4m. In the absence, therefore, of continuing support from UBIG and its associates, or from any third party source, the Hearts Board will need to take radical action which may include, amongst other things, the sale of player contracts. It is essential we have certainty as to the availability of resources to meet this requirement as soon as is practically possible."

Fraser goes on to explain that UBIG has assured him that it intends to meet any such funding needs, but that such an assurance is "conditional on HoM 2005 reaching its target of owning 75 per cent or more of Hearts shares."

Page 64 of the document provides further details of the club's debts with both HBOS and UBIG. "On 7 February 2005" - a week after Romanov took effective control of the club by buying out the former chief executive Chris Robinson - "HBOS entered into new facility arrangements with the Company refinancing their existing debt. The new facilities were as follows: a £3m working capital facility, a £2.28m fully drawn committed working capital facility and a £12.32m term loan.

"Immediately following the refinancing on 7 February, Ukio Bankas acquired the interest of HBOS in the £2.28m facility and the £12.32m term loan." The £3m facility still appears to be owed to HBOS.

"On 26 September 2005, UBIG granted the Company an unsecured loan of £800,000, repayable by 31 January 2006. If the loan is not repaid by this date, 10 per cent annual default interest is payable . . . and UBIG will claim as repayment the proceeds of any player sales that the Company may decide to pursue to enable the debt to be repaid.

"On 4 November 2005, UBIG granted the Company a further unsecured loan of £1.5m, also repayable by 31 January 2006." Ten per cent interest is also payable on that.

If HoM 2005 does gain 75 per cent, the Hearts board will be expanded from its present complement of five. "It is envisaged that a representative of the supporters will be invited to join the Hearts Board as a director," the document says on Page 9.

The four supporters' groups - the Federation, the Trust, the Fans' Forum and the Shareholders' Association - are likely to propose one or two members each for a shortlist. All the members of those groups would then be invited to vote for one of the names to become a director.

Taken from the Scotsman