One of the great unanswered stories of Australian media this year is why banks and other financial groups won’t refinance Foxtel’s $1.5 billion debt.
The question of why financial groups are unwilling to lend a hand has resurfaced, with a a US$75 million (A$110 million) debt repayment due today, Wednesday September 25. Barring a last-minute refinancing deal (after nine months of fruitless negotiations) that repayment will be made via a shareholder loan from News Corp alone. Telstra, which owns the 35% of Foxtel not in News Corp’s control, has not contributed to the hundreds of millions of dollars in loans made to Foxtel this year.
There is a further US$150 million (around A$220 million) due on December 28, and if that is dealt with via a shareholder loan it will mean that by the end of 2019 News Corp will have lent Foxtel the best part of A$1.05 billion. News already lent A$500 million by June 30 to allow it to repay loans which fell due in the first half of 2019. There was another A$220 million due on July 25.
News Corp’s 2018-19 annual report said:
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During the fiscal year ended June 30, 2019, the Foxtel Debt Group had repayments of $1.03 billion, including the repayment of its A$300 million (approximately $216 million) facility maturing in April 2019 and the repayment of its A$200 million (approximately $139 million) facility maturing in May 2019, and borrowings of $681 million. The repayments of the A$300 million facility maturing in April 2019 and the A$200 million facility maturing in May 2019 were repaid using A$500 million of shareholder loans provided by the Company.
There is a further US$56 million (around A$82 million) due January 31 next year, and a massive US$281 million (around A$414 million) due July 31, for a total of US$337 million (around A$496 million) next year. That means that by the end of July 2020, News could have lent Foxtel over A$1.5 billion, which begs the question why the banks won’t help out.
Telstra has been unwilling to join News in extending shareholder loans to Foxtel (though it was a different story when Telstra owned 50% of the company). Its lack of interest in investing any more money into Foxtel remains a tantalising judgement on the future of the performance and profitability of the pay TV group. There’s a view Telstra doesn’t want to throw good money after bad while having to finance its 5G expansion and meet the challenges from the NBN.
News Corp is not expecting the banks to lend any time soon — its shareholder loans expire in eight years, falling due in 2027. That’s a hint the Murdoch-controlled company expects to be financing Foxtel for most of the next decade.