TopTV parent On Digital Media is turning to China in an effort to stave off business failure. The proposed deal will result in China’s StarTimes taking a 20% stake in the business, the maximum foreign shareholding allowed for South African broadcasters.
The troubled operator, which is under “business rescue” in terms of the Companies Act, announced on Tuesday that it was discontinuing two of its channels “due to operational reasons”. Last June, auditing firm KPMG declared TopTV technically insolvent.
Acting CEO Eddie Mbalo said in November 2012 that the company required a “significant cash injection to recapitalise it” and that the best source of such a cash injection would be an existing industry player.
Mbalo added that the legislative requirements that allow a foreign entity only a 20% share in ownership finding an appropriate partner was proving challenging.
“South African companies in this space have generally taken between three and four years to make a profit and with far less regulatory and statutory restrictions imposed on them”.
TopTV chief financial officer Simon Woodland says the basis of the rescue plan involves the proposed investment by StarTimes in On Demand Media. StarTimes has pay-TV operations in 16 countries across Africa with 2m subscribers.
“StarTimes will become ODM’s strategic equity partner and will assist with its considerable expertise in the pay-TV field. The rescue plan includes payments to trade creditors, preference shareholders and shareholders, as well as continued involvement in the company going forward by the existing shareholders.”
Woodland believes all parties including the creditors, shareholders and staff “are better off than they would be in a liquidation, which is the most likely alternative outcome”.
“The deal with StarTimes is the finalisation of a process that has considered potential equity interest from more than 15 different parties, both local and foreign, and has only been made possible due to the indulgence of the secured creditor, the Development Bank of South Africa, and many of On Digital Media’s content and other suppliers.”
The proposed rescue plan will be put to the vote of creditors and shareholders within the next 10 working days and, if passed, Woodland says it will be implemented over the next few months.
Meanwhile, the founder of the company, Mergan Moodley, expressed reservations about the deal in an interview with the Mail & Guardian on Wednesday, saying political interference by the Industrial Development Corp (IDC) left the firm facing financial ruin.
Moodley, who is a minority shareholder in ODM, says the IDC wanted to devalue the company to expedite a sale to StarTimes at a reduced price. Moodley also alleges the IDC orchestrated the replacement of former CEO Vino Govender with Mbalo.
Launched in 2009, TopTV was the only one of five operators licensed by the Independent Communications Authority of South Africa to launch commercial services to take on the long-standing incumbent, MultiChoice’s DStv. — (c) 2013 NewsCentral Media