Sports Direct to stop borrowing from founder

Sports Direct, Britain's biggest sportswear retailer, faces an increase in its borrowing costs, it said on Friday, after deciding it will no longer use a loan facility provided at favourable rates by its billionaire founder Mike Ashley.

The firm, which last month issued a profit warning, said it took the decision to avoid further criticism over related-party transactions. Ashley, who is deputy chairman, holds 55 percent of the company.

Sports Direct's share price has fallen 42 percent over the last year with the firm also under fire from media, investors and politicians over its working practices.

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 788 million pounds ($1.1 billion) and under its terms the interest rate payable increases if more than a third is drawn down.

Previously, when Sports Direct required borrowing in excess of this amount it utilised a 250 million-pound loan facility with Ashley, as the rate of interest payable was about 50 percent 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 1 million pounds," said the firm.

In the coming months Sports Direct expects its borrowing requirements will be consistently in excess of 263 million pounds.

"It has been decided that it is in the best interests of the group and its shareholders to avoid further criticism at this time," it said.

"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."

Shares in Sports Direct were down 1.1 percent at 395 pence at 0818 GMT, valuing the business at 2.36 billion pounds.