The day after Inter Milan clinched their 20th league title by defeating their rivals AC Milan in a historic Derby della Madonnina last month, players Hakan Calhanoglu and Marcus Thuram invited club president Steven Zhang to join them for an Instagram Live.
Zhang was not in Italy for the game, nor for the celebrations in the city’s Piazza del Duomo.
“President, you got us for zero Euros, eh?” Thuram pointed out, bringing up his free transfer from Borussia Monchengladbach last summer and Calhanoglu’s from Milan two years earlier. “Zero! Zero!” he repeated, gesturing with his thumb and forefinger.
“The car is costing more than us,” Calhanoglu laughed, no doubt alluding to the Ferraris and Lamborghinis that appear on Zhang’s social media feed.
“We can have a gift?” Thuram asked cheekily. “A watch?”
Arm across his forehead, Zhang replied jovially: “It was a mistake accepting the invite.”
It was awkward, too. Sunday’s season-ending 1-1 draw with Lazio at San Siro was the 32-year-old’s last game as president of Inter. Zhang hoped it wouldn’t be. But the writing was on the wall.
He has not been to the hallowed stadium Inter share with Milan in more than a year, an absence neither Zhang nor the club has explained.
In 2022, the High Court of Hong Kong ordered him to repay $254million (£199.3m at the current rate), at 13 per cent interest, on unpaid debts to China Construction Bank and submit himself to a debtor examination. This March, the court of appeal in Milan ruled that judgment is now valid in Italy, too.
Take a moment to consider the context of the above for a moment.
An Inter player was teasing Zhang about the whereabouts of a gift to commemorate this season’s Scudetto at a time when a government-owned bank in the People’s Republic of China has been demanding: where’s our money?
The legal action taken by China Construction Bank raised questions about Zhang’s ability to remain president of Inter.
The club are not owned by him personally, but a Luxembourg-based shell company set up by Suning Sports International Limited, a subsidiary of the Suning.com business empire his father, Zhang Jindong, founded and presided over until he lost control, resigning in the aftermath of a bailout led by local government in Jiangsu province in 2021.
It was at the height of the COVID-19 pandemic and, as detailed in the long read for our crisis club series in November, Inter were also celebrating a Scudetto. But they were also at risk of going under, struggling to pay their players, until Oaktree, a U.S. asset management firm, handed Zhang a lifeline.
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On May 20, 2021, Oaktree loaned Inter’s holding companies €275million (£234m; $298m) at 12 per cent interest for three years and secured its money by obtaining a pledge from the borrower. In the event of default or non-repayment at maturity, Oaktree would get whatever was held in the Luxembourg-based shell company, Grand Tower. It would get Suning’s majority share of Inter.
The deadline was due to expire on Monday; only Monday, as everybody knows, is a bank holiday in Luxembourg — Pentecost for those asking — and so Zhang got another 24 hours to count the cost, pay up or refinance the loan. At maturity, it bulged to approximately €395million (more than the Saudi PIF-led consortium paid for Newcastle United in 2021).
In the days leading up to Inter’s second star-clinching game against Milan (each star above the club crest on their shirt representing 10 titles), Zhang, perhaps emboldened by how well things were going for his club, appeared at the Formula 1 Chinese Grand Prix in Shanghai. “I guess what I can say is we will continue the fight. None of the rumours is true,” he said. “And as long as I’m the president, as long as I’m the owner, we will continue to win and continue to aim for the best, no doubt.”
Zhang on the grid at the Chinese Grand Prix in Shanghai last month (Qian Jun/MB Media/Getty Images)
A position of strength was projected as the zenith of Inter’s season approached.
Stories had begun to emerge claiming Zhang was close to a deal with Pimco, an investment management firm, over a refinancing. The mooted transaction was reportedly worth more than €400million for three years at an interest rate approximating 20 per cent, enabling Inter’s incumbent owner to pay back Oaktree and remain in control of the club.
“S for Scudetto, for Steven, for Soldi (money), for Shanghai, for Star. It all adds up,” a cheerleading Gazzetta dello Sport wrote. “At the heart of it all is Zhang because Inter is and remains in his hands.”
But contrary to what has been asserted in Italy during the past month, The Athletic understands that, while Pimco did look at a refinancing, it was not imminent.
After all, such deals take time to bring together. Due diligence needs to be carried out, and only once it is complete and satisfactory do the parties move on to the next phase. A term sheet gets drawn up. Then a securities and pledge agreement. All of this does not happen overnight. Refinancings are not like player transfers going through on deadline day.
Zhang’s desperation became clear in a statement on Inter’s website on Saturday night. It was the first time he acknowledged to “the Nerazzurri family” that there might be a problem.
“During the approach of the pending Oaktree facility redemption date,” Zhang wrote, “we have been making every attempt with our partner to find an amicable resolution, including multiple paths for Oaktree to achieve full and immediate financial return. Unfortunately, our efforts to date have been exasperated by legal threats, and a lack of meaningful engagement from Oaktree.
“Not only has this been deeply frustrating and disappointing, such behaviour now poses potential risks to the club that could seriously jeopardise its stability.”
There’s a lot to unpack here. But for Zhang, who posted a photo on his Instagram of him at a Morgan-Stanley induction in 2015 with the hashtag #bankerlife, it should have been fairly straightforward: type in the account details Oaktree supplied three years ago and wire the money owed to their account by midnight yesterday (Tuesday). An impending maturity is not a legal threat and the only meaningful engagement necessary was laid out in the rules of engagement detailed in the term sheet — rules Inter’s owners signed up to in 2021.
As for the “potential risks to the club that could seriously jeopardise its stability”, Inter were in jeopardy of going bust back then and the owners needed an emergency relief loan from Oaktree to prop the club up. The worst-case scenario today isn’t bankruptcy, it’s a fund with €172billion worth of assets under management becoming the new owner.
Alexis Sanchez clutches the Serie A trophy (Mattia Ozbot – Inter/Inter via Getty Images)
Oaktree didn’t loan Inter’s owners that money with the intention of one day seizing the club. Football clubs, as hedge fund Elliott found when it confiscated AC Milan from enigmatic Chinese businessman Yonghong Li in 2018, are time- and labour-intensive assets. They bring great media scrutiny.
Part of Oaktree’s business is to act as a lender, and lenders need people to borrow money from them. Develop a reputation for repossessions and borrowers will go somewhere else for credit. The loan was granted on the understanding Zhang would have three years to restore his Picasso — football clubs and fine art share scarcity value — then offload it, and allow Oaktree to participate in the uplift from a successful sale.
Investment banks Goldman Sachs and Raine were retained to find a buyer but Inter have remained unsold. The only offers in the public domain were made by the curious figure of Thomas Zilliacus.
Zhang hoped for “a peaceful” and “amicable” resolution with Oaktree in order for Suning “to continue our success story for our beloved Inter”. Negotiating an extension with Oaktree seemed unlikely in the aftermath of the strongly worded statement published on Inter’s website which was perceived by local media as an “attack” on the fund. And, besides, Suning had had three years not three days to come up with the money.
On Instagram, Zhang posted a photo of a “Grazie Steven” banner at San Siro from Sunday’s Lazio game. His stories on that platform have been quiet since. Time was up. When the €395million Suning owed didn’t appear in Oaktree’s account on Tuesday, the reckoning — otherwise known as an ‘Enforcement Event’ — finally came. Suning’s seven-year run as Inter’s patron ended.
“As new owners, we recognise our responsibility to Inter’s community, history and legacy,” said Alejandro Cano, the managing director and European co-head of Oaktree’s global opportunities strategy. For all the conjecture on social media about the fund already having a buyer lined up, Inter was not Oaktree’s asset to manage or sell until today (Wednesday) and immediately flipping the club isn’t on the agenda.
“We are committed to the long-term success of the Nerazzurri and believe our ambitions for the club are united with those of its passionate fans in Italy and around the world,” Cano said. “Our initial focus is operational and financial stability. We have great respect for Inter’s management team and look forward to working closely with them to provide strong leadership for the club.”
That means retaining Beppe Marotta, the recruitment figurehead, chief executive and seasoned footballing politician, as well as sporting director Piero Ausilio, vice-president and club legend Javier Zanetti and corporate chief executive Alessandro Antonello.
Striker Lautaro Martinez’s Inter contract expires in 2026 (Image Photo Agency/Getty Images)
Marotta signed a new contract until 2027 over the winter and aligned himself very closely with Zhang. He will be critical for Inter’s continuity and the new owner’s credibility, particularly with the contracts of head coach Simone Inzaghi and veteran defenders Francesco Acerbi and Stefan de Vrij coming to an end next summer — not to mention those of midfielder Nicolo Barella and striker (and captain) Lautaro Martinez, which are due to expire 12 months later.
While it’s more or less business as usual for Inter, what about Zhang and Suning? He has lost his toy. Will he fight its seizure?
In the wording of the pledge agreement struck three years ago, Oaktree can “appropriate, or have appropriate by a person designated by” them “the Pledged Assets at their Fair Market Value” which, crucially, will be appraised “by an approved independent statutory auditor or an investment bank, appointed by the Security Agent (Oaktree) at its sole discretion, always at the costs of the Pledgor (Suning Sports International Limited)”.
This is presumably where some of the underlying tension of Zhang’s statement lies. Because what is fair market value? It’s in the eyes of the beholder.
Sports business website Football Benchmark gives Inter an enterprise value of €1.2billion. Another, Sportico, recently published a ranking of the game’s most valuable clubs which placed it at just short of €1bn. But what has the market said throughout the sales process? Inter aren’t worth those figures and, at the end of the day, an asset is only worth what the market is willing to pay for it.
Antonello, Oaktree’s global opportunities strategy managing director Katherine Ralph, Cano and Marotta (Guido De Bortoli/Getty Images)
This means Inter are worth less, rather than worthless.
But once you factor in the club’s negative cash flows (Inter lost €85million last season, despite being out of COVID-19 and going all the way to the Champions League final), the liabilities that need pricing in (for starters, a €405m bond) and the slow progress on a new stadium (Inter extended an exclusivity option on a piece of land in Rozzano, to the south of Milan, in April, rather than buying and developing it), it’s a major undertaking for a buyer to take on, no matter how much legacy value is tied up in Brand Inter and how successful the team are being on the pitch at the moment.
The club are in negative equity, their working capital looks inflated and the debt or debt-like items are considerable. All these things deduct from Inter’s value. Off the pitch, Oaktree will need time to turn things around. On it, they assume control of the best Inter side since the 2010 treble winners, one that has begun a mini-dynasty in the past four years with two Scudetti, two Super Cup-Coppa Italia doubles and appearances in the finals of the Europa League and Champions League.
“Winning the second star was a pivotal moment for the club,” Cano said. “And our aim is to build on the momentum achieved on the pitch to develop a clear path for consistent growth and success.”
(Top photo: Jonathan Moscrop/Getty Images)
