Sun, 08 Dec 2019

In its court application this week to liquidate Sekunjalo Independent Media (SIM) - which controls the country's largest newspaper group - the PIC annexed an extract from minutes of an October 29 meeting by its portfolio management committee.

The minutes noted that if the liquidation application was successful, "the PIC would have an ability to Investigate the actions of the Directors [of Sekunjalo Independent Media]".

Those directors include Iqbal Surve, who is cited as the second respondent in the application.

Surve's family investment company, Sekunjalo Investment Holdings (SIH) dominates SIM, despite the inclusion of some smaller union and community shareholders.

SIM in turn owns 55% of Independent News Media South Africa (INMSA), the publisher of 20 newspapers. The PIC itself owns 25% of INMSA while Interacom Holdings owns the balance of 20%. Interacom consists of a previous Surve backer, the China Africa Development Fund, and Chinese state-owned China International Television Corporation.

It is SIM, not Independent, that stands to be liquidated although the potential effect on the newspaper group is unclear. Technically, SIM's share could be sold to a new investor by a liquidator.

Surve compares Sagarmatha to Uber, says it would have been valued at $10 billion

Whether or not Hove's argument makes it into court papers, it seems incongruous because the set of transactions that were meant to take place between Sagarmatha and SIM were conditional on the listing, which never happened.

Matjila's testimony at the Mpati Commission confirmed this.

"One of the suspensive conditions of the agreement was the successful listing of Sagarmatha which ultimately never happened and therefore the agreement never became operational and lapsed," said Matjila.

So, how bad is SIM's position?

The R609 203 987 owed to the PIC is not even close to the full extent of SIM's debt. The PIC also holds convertible preference shares which were worth R433m at the end of 2016. The PIC also gave a shareholder's loan of R183m directly to Independent which is due next year. In Matjila's statement to the Mpati commission, he somehow got the values of these debts completely wrong.

According to him SIM only owed R234m on the 2013 loan - but this excluded accrued interest. He claimed the preference shares were worth R285m when in fact they are worth R433m.

We know this due to the failed listing of Sagarmatha, which provided the only recent window into the financial affairs of SIM.

Like Surve's controversial AYO Technology Solutions, Sagarmatha would have received billions from the PIC (under Matjila).

The PIC's contribution would have been R7.5bn if the Sagarmatha listing proceeded in the same fashion as the AYO listing a few months earlier where only the PIC actually got allocated shares.

After listing, the plan was to have Sagarmatha buy Independent and pay off its debts using PIC money.

JSE: Sagarmatha listing was cancelled due to non-compliance

The rest of Sagarmatha was a hotchpotch of smaller companies dominated by the remains of R350m Surve got from the China Africa Development Fund (CADF) to prop up African News Agency in 2015.

Earlier this year ANA fired all its employees citing financial difficulties, but then mysteriously offered to rehire all of them less than a month later.

The CADF has remained a staunch Surve backer through Interacom, the 20% shareholder in Independent.

Interacom has displaced the PIC as SIM's major funder by lending it nearly R1bn.

According to the pre-listing statement published by Sagarmatha, SIM owed Interacom R909m at the end of 2016.

The urgency of getting that listing done is obvious if you look at the repayment terms attached to both the PIC and Interacom loans. Both required repayments in 2018.

The massive Interacom loan has nonetheless kept SIM afloat despite accumulated losses of R617m (as of 31 December 2016).

SIM's total debt, consisting of the Interacom and PIC loans, came to R2.4bn at that point.

The only thing keeping SIM solvent was the value is ascribed to the various publication brands it owns. It valued these at R866m in 2016.

SIM and Independent, like all media, have been under immense financial strain for years due to the rise of free digital content and shrinking advertising.

The PIC's loan agreement with SIM was seemingly blind to this trend in the industry.

The 2013 loan agreement attached to this week's application includes financial projections up to 2018 which now seem laughable.

Back then revenue in 2016 was projected to reach R3bn. In reality it came in at R1.8bn.

The estimated profit in 2016 was R185.5m after tax. It turned out to be a loss of R530.7m.

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