ATV shareholders at loggerheads for months
The relationship between two of ATV's largest shareholders, Payson Cha Mou-sing and Taiwanese snack food tycoon Tsai Eng-meng, was severely strained months before Linus Cheung Wing-lam's resignation as the troubled broadcaster's chairman last week.
As far back as October, Tsai was accusing Cha of 'bad faith' and being 'ridiculous' over allegations by Cha surrounding proposals for Tsai to pump up to HK$1 billion of extra money into ATV.
This has come to light in two letters from Tsai to Cha dated mid-October, seen by the South China Morning Post. Both appear to be responses to earlier letters by Cha.
Tsai wrote that he reserved his legal rights against Cha over allegations in a letter, which he did not spell out but said were 'groundless', 'offensive' and 'defamatory'.
In the first letter, dated October 17 and copied to all board members, Tsai wrote that he never promised additional funding of HK$1 billion for ATV as suggested by Cha, saying that providing extra money was an option, not an obligation.
Tsai said in the letter that he had an indirect economic interest of only 47.58 per cent of ATV, through B shares he owned through Antenna Investment, the broadcaster's major shareholder co-owned by Tsai's camp and Cha's family; and he had only two representatives on the 10-member board.
As a minority investor without control and no ability to gain control it was 'simply not realistic' for him to provide a 'disproportionate level of additional funding' for ATV, when no other shareholders intended to provide extra money and he had already committed 'a substantial amount of capital' to the company.
This included his unspecified initial investment as well as some HK$200 million through multiple purchases of convertible bonds, a person familiar with the dispute said.
Cha's family owns 51 per cent of the A shares of Antenna, which have voting rights, while Tsai owns the rest. Cha's family also owns 10.75 per cent of ATV's shares through Panfair. The rest of the shares are owned by Chan Wing-kee, with Phoenix TV chairman Liu Changle and mainland conglomerate Citic Group.
In another letter sent only to Cha dated October 22, the Taiwanese tycoon said he had come up with options to raise funds for ATV other than issuing convertible bonds.
He wrote that he had discussed these ideas with Cha in person in Taiwan on September 14 and on September 18. Tsai proposed to the board a loan of HK$15 million for a two-year term, with 30 per cent of the interest set off by advertising airtime.
'ATV has no money and 30 per cent of its advertising airtime has been unsold,' a person familiar with the dispute said. 'Offering a loan was a much quicker way to raise cash for ATV, compared to issuing convertible bonds.'
The loan proposal was shelved.
In the letter, Tsai said Cha claimed that he was not given the chance to comment on Tsai's proposal. But Tsai said that as he had discussed the proposal with Cha in person before putting it to the board, it was 'in very bad faith that you now claimed not to have been given an opportunity to comment [on it]'. Tsai also told Cha he was being 'ridiculous' for claiming that Tsai should be solely responsible for 'very substantial amounts of additional funding' to ATV while Cha was not prepared to commit any further capital.
Saying that he reserved his legal rights, Tsai said the investment he had made in ATV was based on 'mutual trust and respect' - which had been shattered by Cha.
In November, after ATV chief executive officer Nancy Hu Gin-ing said the broadcaster was in desperate need of cash, Tsai offered loans.
On November 12, he proposed to lend HK$10 million to ATV for a year at 30 per cent interest set off against the cost of advertising time provided to him. On November 16, on the eve of last month's board meeting, Tsai offered to lend ATV HK$20 million for a year at 8 per cent interest payable in cash, or 30 per cent interest to be settled in kind by advertising airtime. But the next day the board approved another round convertible bonds at one-fifth of the price that Tsai had paid for those previously issued.
'These convertible bonds were set to dilute Tsai's shares,' said the person familiar with the dispute.
Last week, the Post reported that Cha ignored Tsai's request to transfer 2.75 per cent of shares from Panfair to Antenna, and 2 per cent of voting shares to Tsai within Antenna, as stated in a contract between the two.
No comments could be obtained from Cha's camp. ATV said it had no comment on arguments between shareholders.
Cheung's resignation on December 7, after a year as chairman, and the row between shareholders have drawn concern from lawmakers and the government. At a meeting of Legco's information technology and broadcasting panel yesterday, Democrat Lee Wing-tat asked whether ATV could continue to fulfil its licence requirements, and proposed a special meeting to discuss the issue. Permanent Secretary for Commerce and Economic Development Duncan Pescod said the government was looking at the situation closely.