SA's largest cinema chain Ster Kinekor, could soon be out of business rescue and back to normality after a R250m offer was made for the business.
London-based Investment firm Blantyre Capital and Cape-Town based Greenpoint Capital are hoping to buy 100% of the loss-making Ster Kinekor, which has been in the form of bankruptcy protection since January 2021.
The cinema chain, which is 50 years old and owns 407 screens in 52 SA sites, is operational, but owes creditors such as landlords and banks more than R250m.
Blantyre Capital specialises in lending and buying distressed firms, usually in Europe, that are experiencing temporary difficulty.
The interest by the two investment houses was expressed in December, but the deal has only been finalised after a protracted and challenging negotiation with creditors owed tens of millions of rand.
The company, which has 65% of the SA movie market share, went into voluntary business rescue in January 2021, after lockdown restrictions required cinemas to remain closed for five months in 2020. The process allowed it to hold off on debt repayments as turnaround specialists develop a rescue plan.
Cinemas also recorded low audience numbers during the peak 2020 December season, as it coincided with the second wave of Covid-19.
Additionally, blockbuster movies that attract audiences to the big screen were in short supply in early 2021, as US production studios had been closed because of the pandemic.
Ster Kinekor’s business rescue plan and the details of the purchase offer were released late on Monday after almost a year. Creditors had granted business rescue practitioners numerous extensions before requiring the plan. The practitioners had been waiting for audience figures to normalise, to better predict the likelihood of Ster Kinekor’s long-term success.
The plan and purchase price needs to be voted on by creditors, including Rand Merchant Bank (RMB) and landlords next week and requires approval by a 75% majority of the main creditors.
If given the go-ahead, landlords will receive 5c for every rand they are owed. Suppliers, including landlords, owed a collective R140m, will earn about R7m.
The business rescue practitioners will earn R10m in “success and retention fees” over and above their payment, according to the rescue plan.
A media statement about the plan says the landlords’ “primary benefit is the ongoing trading of Ster Kinekor and the ability to earn future profits from this relationship”.
The R26m, which landlords have provided to the business since February 2021 just after it entered business rescue in decreased or zero rentals, will be repaid in full.
However, all rentals and contracts will be renegotiated in terms of the plan.
There is about R6.2m earmarked for closure costs, suggesting some cinemas will be shuttered.
RMB will receive a final payment of R46.2m, which equates to half of a Covid-19 loan it made available during the hard lockdown.
Ster Kinekor also has R103m in ordinary debt with lender RMB. Initially, the bank will get 9% of the R103m owed to it and then another R19m. However, much larger percentages of debt will be repaid over time with the amounts repaid varying depending on Ster Kinekor’s earnings. Some of the interest-bearing debt only needs to be repaid to RMB in 2027.
If the business plan and R250m purchase price are rejected, the cinema chain will be liquidated and 776 current employees will lose their jobs. Landlords would only get 4.5c for every rand they are owed. RMB would not get any of its Covid-19 loan repaid in the case of liquidation.
Of the R250m offered, R188m is earmarked to cover business rescue costs and debt owed to creditors that accumulated after the business rescue began. The chain will be left with R62m for future operational costs.
Business rescue practitioner Stefan Smyth said the offer “will also return the company to solvency and provide a growth platform for Ster Kinekor, underpinned by a strengthened balance sheet, which should provide the business [funds] to regain lost growth during the pandemic and expand where feasible”.
The current owners of Ster Kinekor include RMB (22%), MIC investments (21.3%), Old Mutual Life Insurance (3.9%), Old Mutual Specialised Finance (9.5%), Old Mutual Private Equity (14.7%), Ethios Private Equity Fund V1 (19.7%), EPE Capital partners (4.4%), the MMI group (2.7%) and the Galana Trust (1.2%).
Ster Kinekor says weekly attendance in early February appears to have returned to pre-holiday season levels, which were good. “Films like Encanto, Scream 5 and Sing 2 remain in the top five films every week. Led by Spider-Man, these blockbusters are meeting and exceeding their weekly forecasts, with management expecting them to continue to pull in moviegoers ahead of anticipated forecasts.”
Update: March 1 2022
This story has been updated with new information.
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