Malcolm Maiden – Towards the end of 2000, Mark Carnegie, John Wylie and friends, including John Singleton's media group, STW, placed a large bet on the Indonesian television industry.
There were a few people who thought they were barking mad at the time. But as sharemarkets everywhere nosedive and experts declare that almost every stock is a sell, it is worth remembering that sometimes fortune favours the brave – as it did last week when the company the Australians invested in floated on the Jakarta stock exchange at a handsome premium.
Carnegie, Wylie, the Singleton group (now called STW Communications) and their Indonesian partner, Eddy Sariaatmadja, initiated the play in November 2000, paying $US37.5 million (then about $72 million) for one-third ownership of PT Abhimata Mediatama, which owned an indirect 73 per cent interest in Indonesia's SCTV television network.
STW put up $US23.73 million, and the advisory-investment boutique that Carnegie and Wylie had just established – Carnegie, Wylie & Co – stumped up $US10 million.
It was a fair sized bet for them both, and particularly for Carnegie and Wylie. They were committing half of a private equity investment kitty they had put together by combining their own money with that of investors including Wylie's former employer, Credit Suisse First Boston, and the Los Angeles investment and advisory house Hellman and Friedman, which Carnegie represents in Australia.
What they got for their trouble was effective control of Indonesia's third-largest free-to-air television network.
The deal valued SCTV at just $US125 million and, on face value, it was a promising entry price. SCTV had about a quarter of the Indonesian market, which generated advertising revenue of just under 2 trillion rupiah in 2000, about $387 million.
The big risk was Indonesia itself. In November 2000 the country was politically and financially fragile, and not many people were prepared to bet that the situation would improve any time soon.
The key call the partners made was that the TV business in Indonesia would not be overwhelmed by the distressed macro environment.
That proved to be the case: SCTV was cash-positive from the start and it contributed 22 per cent of STW's December 2001 half year net profit after tax of $17.5 million. The television company's earnings before interest, tax and depreciation are now running at about $US35 million a year.
Still, last week's public float of SCTV wasn't a sure thing. Markets have been weak everywhere this year, though strong in Jakarta, and SCTV was the first global offering on the Jakarta Exchange since the 1997 financial markets crisis.
The shares were also marketed from mid-June right through the global sharemarket shakeout in response to the WorldCom debacle, necessitating a substantial cut in the offer price from between 1400-1550 rupiah a share to 1100 a share.
The latest Wall Street ructions mean that SCTV shares will be under pressure today – like every other listed offering – but so far the consortium is comfortably ahead.
SCTV floated at a small premium on Tuesday and the shares held the gain to close at 1125 rupiah on Friday, valuing the company at 2.1 trillion rupiah, about $US233 million.
On paper therefore, the consortium has achieved a return of 85 per cent on their investment – in a 20 month period when the global sharemarket as measured by the Morgan Stanley Capital International basket of stocks has fallen by about a third.
So far, that's only a paper gain. The Australian partners did not sell into the float – the consortium actually increased its stake in SCTV, from 17 per cent to about 26 per cent, after taking on Abhimata Mediatama convertible debt last year which was extinguished and converted to shares in the float.
The consortium's total ownership now stands at 40 per cent and SCTV's float gives the partners an exit path, should they want to take it.
The signs are that the partners are staying in for the time being, however. And why not – the hard work has been done, time for some earnings.