The drama mounted for the Australian Qintex group Monday with the announcement that the firm--which failed two weeks ago to make good on its $1.5-billion bid for MGM/UA Communications--now intends to sell off $600 million (Australian) in assets to reduce a crushing debt burden.
The Australian dollar was listed at 77 cents on currency exchanges Wednesday.
The financial restructuring was announced after trading was halted Monday on the Australian Stock Exchange while regulators awaited answers to their questions about the group's obligations to Qintex Entertainment Inc., a 43%-owned affiliate that sought the protection of bankruptcy court in Los Angeles late last week.
Before trading halted, shares of Qintex Australia had plunged to 16 cents (Australian) from 33 cents on Friday. The price of Qintex Ltd., which owns 55% of Qintex Australia, dropped to $1.50 (Australian) from $3.05 on Friday.
In another development, two outside Qintex directors resigned rather than approve payments to senior executives, Qintex Chairman Christopher C. Skase disclosed. The disagreement arose over certain fees claimed by a management-services company in which the executives have an interest. For the year ended July 31, Qintex Australia paid the management company $32.6 million (Australian). The resigning directors were identified as Fred Davey and Ted Harris.
The assets marked for sale include three Australian television stations and Qintex's remaining 51% stake in Mirage Resorts in Australia and Hawaii, but a company official said the firm will press ahead with its Dana Point resort project in Orange County.
Qintex Australia Ltd. and Qintex Ltd. together have debt of about $1.4 billion (Australian), according to two analysts at Australian brokerage firms. With interest rates of 18% to 20% in Australia, the debt burden became intolerable to broadcasters such as Qintex, which acquired stations in a euphoric period two years ago only to be disappointed by slower-than-expected advertising growth and high programming costs.
Qintex's resort business also has been hammered since Australian pilots began a strike in late August that reduced tourism revenue by as much as 32% in September from a year earlier, one analyst said.
"It's too early to say whether (Skase) can survive," said Edward Falkiner, head of research in the New York office of Ord Minnett, an Australian securities firm.
Skase "will certainly try," said Viktor Shvets, an analyst with Capel Court Powell Ltd. "One of the good things about Qintex is it certainly has top-quality assets."
And--until Skase bid for MGM/UA--the Qintex chairman appeared to be a more frugal buyer of Australian assets, according to Shvets. Skase paid about $64 per viewer for his television stations, in contrast to $90 to $100 paid by his two largest competitors, the analyst said.
"Until he met (MGM/UA majority shareholder Kirk) Kerkorian, he was paying the right prices," Shvets said.
In mid-September, Skase outbid Rupert Murdoch for MGM/UA by offering to pay $25 per share. As part of the "irrevocable" deal, he promised to deliver a $50-million letter of credit by Sept. 22. The letter was never delivered, however, and on Oct. 10 the deal collapsed amid rancorous accusations and a MGM/UA lawsuit accusing the Australian Qintex firm of fraud.
The collapse of the MGM/UA deal was one problem cited Monday by Skase, without elaboration. But analysts pointed out that Qintex had apparently counted on MGM/UA's cash--estimated at $145 million--to help address Qintex's short-term cash flow problems.
Some analysts were still reeling from the Qintex Entertainment bankruptcy filing last week, because they believed the U.S. company had the Australian's group full backing. When a $5.9-million payment to MCA Inc. came due, however, Qintex Entertainment sought the court's protection because--even with the help of Qintex Australia--financing could not be arranged, the company said.
One of Qintex's most visible assets remains the Dana Point resort project in Orange County, which an official described as a top priority now that the MGM/UA deal has collapsed.
"This is very important to the company," said a Qintex official. "It's an opportunity that can't be replaced at any price."
The company said it is still negotiating for financial backing in Dana Point with two Japanese companies, Mitsui & Co. and Nippon Shinpan Co., which already own 49% of the three resorts in Australia and Hawaii that Qintex says it's selling. The two companies paid $350 million for the three resorts in March. As part of the deal, they got first crack at buying half of the Dana Point resort.
Qintex bought two sites in the beach town for about $247 million this summer and plans to build a resort for affluent guests.