April 21, 2017 11:45 pm JST

Fundraising plan sends i-Cable shares on roller-coaster ride

Developer-led consortium expects 10% staff cut at Hong Kong's first pay TV

JENNIFER LO, Nikkei staff writer

A TV screen shot from i-Cable's 24-hour Cantonese news program. (Photo by Kenji Kawase)

HONG KONG -- Hong Kong's struggling pay television operator i-Cable Communications announced that white knights led by pro-China property tycoons had come to its rescue, sending its shares up nearly 18% after a sharp selloff earlier on Friday.

I-Cable shares plunged during morning trading, after the announcement of a fundraising plan sparked concerns over stock dilution and the growing influence of China's "red capitalists" -- businessmen with close ties with Beijing -- on media freedom in the former British colony.

At one point, the stock was down 25% from the previous close on Monday, at HK$0.46 -- a roughly 14-month low -- but it rebounded in the afternoon session to close at HK$0.72. The shares were suspended on Tuesday pending an announcement.

The TV operator said late on Thursday that it would seek to raise 704 million Hong Kong dollars ($91 million) through an open offer that is likely to make Hong Kong developer Henry Cheng Kar-shun, chairman of New World Development, a major investor in i-Cable.

However, the fundraising plan will come at a cost. Up to 10% of i-Cable's 2,000 workforce could be laid off as part of a HK$200 million cost-reduction exercise, according to its new investors -- a consortium led by Forever Top (Asia).

Forever Top is 31%-owned by Cheng, who has refrained from appearing in public after news surfaced in January that he had suffered a stroke. Other shareholders include David Chiu Tat-cheong of developer Far East Consortium, Li Sze Lim of Chinese developer Guangzhou R&F Properties and Zhao Linghuan of Chinese equity firm Hony Capital.

"The TV industry won't die. It still has room for development," said Chiu, who is also chairman of Forever Top, speaking at a press briefing on Friday. "My passion for TV never fades."

Chiu, a tycoon whose father founded the now-defunct ATV station, tried to apply for a free-to-air TV license in 2015 but saw no progress. He stressed his emotional attachment to the industry but said job cuts would be "inevitable" for a cash-strapped company, without revealing details.

I-Cable, which is currently owned by Wharf, a subsidiary of Hong Kong developer Wheelock, saw its loss widen to HK$313 million last year on dwindling advertising revenue and growing competition after eight years in the red. Wharf decided last month it would cease funding to the two-decade-old TV operator and focus on property development.

Chiu said i-Cable's broadband business, which remains profitable, would be a brighter spot for future growth. Forever Top has plans to invest up to HK$4 billion in producing new programs and buying equipment over the next five years. While i-Cable's 24-hour news channel is likely to stay, resources will be diverted to strengthen its financial news department and boost the number of channels to 180, up from around 130 currently.

I-Cable received approval for a pay-TV license until 2029 and is launching its free-to-air TV operations next month, but industry players are less optimistic about its prospects. William Yeung Chu-kwong, chief executive at Hong Kong Broadband Network, said traditional pay TV has "no future" and will be replaced by on-demand over-the-top TV services.

Skeptics also are concerned that i-Cable's relatively liberal editorial stance will be jeopardized with more pro-China businessmen as its investors. The TV operator's news department is known for its in-depth investigation into sensitive political and human rights issues in Hong Kong and China.

Forever Top's Chiu dismissed such concerns despite his close business ties with the mainland, saying: "Mr. Cheng and I are not red capitalists... Which Hong Kong company does not have investments in China?

Under the agreement with Forever Top, i-Cable will issue 3.35 billion new shares. Qualifying shareholders will have the choice to take up five shares for every three existing shares they own, at a price of HK$0.12. The offer price is a 66% discount to the stock's last traded price following its suspension from trading on Tuesday.

Forever Top would become the new top shareholder in i-Cable with a stake exceeding 60% if all existing shareholders, including Wharf, choose not to take the new shares. Meanwhile, Wharf will not take on any of the new issuances but convert its HK$300 million debts in i-Cable into equity stakes.

Commenting on the fundraising plan, Patrick Pun, chief investment officer at Astrum Capital Management, said the amount of new capital being raised was quite large, and would significantly dilute the shares of smaller investors.

Chiu saw it differently although he admitted that he began to watch i-Cable TV programs only recently. Asked about his long-time partner New World's Cheng, Chiu said their discussion about the i-Cable deal was completed in 10 minutes as both share a similar vision.

"We sincerely believe in the TV industry and the broadband industry, and will continue to expand it."

NQN staff writer Noriko Okemoto in Hong Kong contributed to this story.

Asia300

New World Development Co. Ltd.

Hong Kong

Market(Ticker): HKG(17)
Sector:
Industry:
Finance
Real Estate Development
Market cap(USD): 12,861.1M
Shares: 9,814.98M
Asia300

Wheelock & Co. Ltd.

Hong Kong

Market(Ticker): HKG(20)
Sector:
Industry:
Finance
Real Estate Development
Market cap(USD): 15,714.6M
Shares: 2,039.35M

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