Ann Crotty Writer-at-large
Iqbal Surve. Picture: GALLO
Iqbal Surve. Picture: GALLO

Iqbal Surve has swept together a collection of insolvent, unprofitable media-related assets and plans to list them on the JSE on Friday, following an initial placement priced at R39.62 a share.

The placement price gives the new company, called Sagarmatha, a market capitalisation of R50bn, placing it second to Naspers in the media sector and substantially ahead of Caxton.

Surve, through family trusts, will be the controlling shareholder of the new multibillion-rand listed entity.

The unprofitable assets will form the basis of what Sagarmatha’s joint CEOs, Grant Fredericks and Gary Hadfield, describe as "Africa’s first multisided platform company, an Africa unicorn and a leader in digital innovation on the continent".

Jim Rogers, a well-regarded international investor and member of Sagarmatha’s advisory board, has given an irrevocable undertaking to subscribe for between R100m and R150m worth of shares. Harold Doley, who was the US representative to the African Development Bank during the 1980s, has given a similar undertaking.

The R7.5bn proceeds expected from the private placement of 189-million shares will be used to open up new regional offices in Africa, make acquisitions, grow the business and repay R1bn of debt.

If the full R7.5bn is not raised, the debt will not be paid and the proceeds will be devoted to growing the business.

The major asset underpinning the hefty market capitalisation is a 55% stake in Independent Media. The Independent Media titles, which include The Star, Cape Times, Mercury and Cape Argus, have been valued at R828m. Other assets in Sagarmatha will include African News Agency, Independent Online Property Joint Venture and online shopping platform Loot.

One analyst said the valuations being attributed to Sagarmatha’s assets would have been unbelievable, even if SA was in the midst of a massive tech bubble. "Apart from the old print media assets, the Sagarmatha businesses are all small, relatively new start-ups struggling to compete in very competitive markets," said one analyst. The danger was that investors would be sold the story of exciting fourth industrial revolution investment opportunities with an African twist, he said.

"If they do collect R7.5bn they will have a decent base for acquisitions, but when you consider Naspers has achieved little with a substantially larger purse, you get a sense of the challenge." He also expressed concern about the rushed timetable, with just one week between the release of the prelisting statement and the scheduled listing date.

Within this week there were two public holidays.

The rush may have been influenced by mounting pressure to repay Independent’s debt. The prelisting statement sheds some light on the tough operating environment faced by Independent in recent years.

In the three years to end-2016 it racked up a loss of R617m. The statement also reveals that by June 2017 the company being listed had an accumulated loss of R752m and its liabilities exceeded assets by R393.8m.

The statement notes that the company’s ability to continue as a going concern is dependent on a number of factors, the most significant being that the directors can procure funding.

To this end, a subordination agreement has been reached between Independent and the Public Investment Corporation (PIC) and the Southern African Clothing and Textile Workers’ Union (Sactwu).

The PIC manages investments on behalf of the Government Employees Pension Fund (GEPF), which has lent Independent R662.7m — 50% of this is repayable in August 2018.

In addition, the GEPF has R433m of cumulative preference shares in Independent and owns 25% of the ordinary shares. Sactwu has lent Independent R244m, half of which is repayable in August 2018.

The combined collection of businesses is unprofitable and have a negative net value. However, the Sagarmatha directors said the company "has built solid scalable technology platforms" and was well positioned to expand through organic growth or through acquisitions.

"Management is focused on its strategic plan to become the largest technology platform company on the African continent," said the directors in the prelisting statement.