Sports Direct could be facing an increase in borrowing costs following the decision to stop using a favourable loan scheme offered by founder Mike Ashley.
The sporting goods retailer, Britain’s biggest, said the move was to avoid additional criticism over related-party transactions.
Since May 2014 Sports Direct has financed its capital requirements through a revolving credit facility with several banks. The facility was recently increased to a capacity of £788m and under its terms the interest rate payable increases if more than a third is drawn down.
In the past, when Sports Direct required borrowing in excess of this amount it exercised Ashley’s £250m loan facility as the rate of interest payable was around50% lower than that payable on the revolving credit facility and did not attract other fees.
“Although an unusual arrangement for a public company, using this facility in this way has been of significant benefit to the group, over time giving rise to a saving of over £1m ” said the firm.
In the coming months Sports Direct expects its borrowing requirements will be consistently in excess of £263m, reported Reuters.
“It has been decided that it is in the best interests of the group and its shareholders to avoid further criticism at this time,” said Sports Direct. “Accordingly the group will not draw down from the (loan facility) in the foreseeable future, which will lead to an increase in the overall cost of borrowing.”