Marc Hasenfuss Editor-at-large
Iqbal Survé. Picture: TREVOR SAMSON
Iqbal Survé. Picture: TREVOR SAMSON

The saga of Sagarmatha Technologies, the Iqbal Survè-founded media company which had its fanciful listings plan scuppered by the JSE this week, is far from over.

Although the company said it would address questions around its future in due course, it seems there are strenuous efforts to formulate a plan B. This could include another tilt at securing a JSE listing, even though local market watchers were aghast at the size of the capital-raising exercise and the inferred market value.

Another option is a costly exercise to secure a listing on an international bourse such as the Nasdaq, where tech-savvy investors may view the company's blue-sky prospects more sympathetically.

Sagarmatha's conglomeration of mostly unprofitable technology and media assets carried an inferred value of R47-billion, with plans to raise between R3-billion and R7.5-billion in a private share placement.

The JSE cited a technical factor around noncompliance with the Companies Act to halt the listing. A miffed Sagarmatha disputed the JSE's ruling, suggesting that indicative commitments of R4-billion had been received from prospective shareholders.

The quantum of commitments is somewhat surprising considering the overwhelmingly sceptical response to the listing in the mainstream market. Before the listing was pulled, Sagarmatha, which had backing from well-heeled US investors and the investment arms of trade unions, had not indicated any institutional support for its listing. It is also believed the Public Investment Corporation, which strongly backs black-controlled enterprises, had not committed to invest in it.

Ultimately, the JSE ruling means Sagarmatha has to resubmit its entire listing proposal. An investment banker who asked not to be named said he believed its best option would be to revisit a JSE listing in a different format. "Leave out Independent Newspapers and raise a more modest sum of fresh capital," he said.

He pointed to the PSG Group's successful listing of blue-sky businesses such as private education ventures Curro and Stadio.

"If you look at Curro's growth path, the listing was done on the basis of initially raising a fairly small amount of capital upfront and then raising further capital in the market as the venture gained traction," he said.

Although Sagarmatha's JSE debut hangs in the balance, there remains a morbid fascination in seeing the listing going ahead in terms of testing the heady inferred valuation against the merciless market mechanism.

The pricing of the share placement inferred a value of R47-billion for Sagarmatha, which is equal to the market capitalisation of perennially profitable JSE giants such as retailers Clicks and The Foschini Group as well as mobility group Imperial Holdings.

Looked at another way, Sagarmatha's inferred value was four times the combined market values of technology heavyweights Datatec and EOH and almost seven times the collective value of listed media counters Caxton, Blackstar and eMedia.

Lentus Asset Management chief investment officer Nic Norman-Smith said it was worth remembering media-aligned giant NewsCorp held a value of roughly R120-billion. "But this is a well-run and well-established business with well-established media brands as well as a valuable property arm."

Another market watcher noted: "[After] the Steinhoff International debacle, investors have become incredibly sceptical. Trying to bring a new investment concept where the intrinsic value or growth fundamentals are not at all apparent is simply not going to fly."

The [Sagarmatha] listing comprised a 95.5% stake in content generators African News Agency (ANA), 83.3% of online retailer, full ownership of news website Independent Online and Sagarmatha Enterprise Solutions. Proceeds from the listing would have been used to acquire Sekunjalo Independent Media (SIM), which controls loss-making Independent Newspapers.

Investors have become incredibly sceptical
Unnamed market watcher, commenting on Sagarmatha investment concept

The inferred value of R47-billion stands in stark contrast to recent financial statements that make it difficult to view Sagarmatha as anything but a small company dependent on loan financing for survival.

For instance, Sagarmatha acquired its stake in Loot, which is significantly smaller than market local leader Takealot, for less than R8-million two years ago. The value of a share buyback in December last year infers a value of R200-million for the business.

The scuppered listing is a serious blow for Sagarmatha as there are currently no operational cash flows to sustain or grow the capital-hungry operations.

While Sagarmatha fundamentally does not appear to be the most compelling investment proposition, the plans to mobilise the capital raised at listing for acquisitions and platform expansion could, at a stretch, have appealed to more adventurous investors.

But what might have really fouled the Sagarmatha pitch was the insistence, apparently against advice, on acquiring SIM or the old Independent Newspapers.

Market watchers suspected this was a convenient ploy to settle debt at SIM by convincing lenders - most notably the Public Investment Corporation - to convert debt into equity or to utilise a chunk of the cash raised at Sagarmatha's listing to repay the Independent Newspapers loans.

The hitch is that SIM - which owns titles such as The Star and the Cape Times - is clearly in dire straits. In the 2016 financial year SIM's loss before taxation bloated to R548-million with declining net yields on advertising revenues, restructuring costs and inflationary pressures on the operating cost structures.

Auditors BDO called attention to accumulated losses of R617-million for the 2014, 2015 and 2016 financial years, and - more ominously - to SIM's total liabilities exceeding assets by R394-million. They noted that its ability to continue as a going concern was largely dependent on directors continuing to procure funding for its operations.