Canwest Global raises ownership issues

Government mulling reduction in foreign ownership restrictions

TORONTO -- After Canada's largest media group was brought low by the market meltdown, the focus now turns to how a restructured Canwest Global Communications Corp. can stay within the country's strict foreign ownership rules (HR, Oct. 6).

Canwest Global, which filed for creditor protection Tuesday, must secure approval from the CRTC, Canada's broadcast regulator, for U.S. bondholders to swap debt for equity in a restructured media group.

The bondholders, who include U.S.-based GoldenTree Asset Management and Beach Point Capital Management, currently hold 70% of debt in Canwest Media Inc., a holding company for Canwest Global.

The third major distressed debt fund is Toronto-based West Face Capital.

Currently, foreign companies are limited to a 20% direct equity stake in Canadian broadcasters and other culturally sensitive media companies.

The Canadian government has mulled a reduction or end to foreign ownership restrictions on local broadcasters, but has yet to introduce reforms to current rules.

The challenge for Canwest Global is completing a debt-for-equity swap and a change of ownership that still ensures broadcast assets remain in the operational control of Canadians.

For a country that long proclaims its cultural sovereignty from the U.S. behemoth to the south, and yet remains highly dependent on Hollywood and Wall Street for film and TV product and financing, there's a host of precedents on how to structure American control of domestic broadcasters and other media assets to stay within foreign ownership limits.

The issue of who wields control over Canadian media assets came up in 2007 when Canwest Global turned to U.S.-based investment bank Goldman Sachs & Co. to largely finance a takeover of cable channels from Alliance Atlantis Communications.

To complete that deal under Canada's foreign ownership limits, Goldman Sachs agreed to control only one-third of voting equity in the cable channels and restrictive veto power as Canwest Global managed the broadcast property.

A likely solution to restructure Canwest Global will see GoldenTree and Beach Point emerge with a majority of the equity and only a minority voting position.

Winnipeg's Asper family currently has voting control of Canwest Global, but is expected to lose operational control of the media group after it restructures and is likely broken up for sale.

The CRTC is also currently dealing with foreign ownership questions as Globalive Wireless attempts to enter Canada's mobile phone market with Egyptian operator Orascom Telecom as its main backer.

During recent hearings, Canada's biggest existing mobile phone providers told the regulator that Globalive is flouting foreign ownership limits as it relies on Orascom for start-up equity and debt.

The CRTC will shortly rule on whether Globalive has structured its relationship with Orascom to qualify as a Canadian-controlled company.

The CRTC will also eventually hold hearings on a change of ownership at Canwest Global as it restructures.

The irony is the future of the Asper family with Canwest Global could well lie in helping the U.S. bondholders similarly seize equity in a restructured media group and make a princely investment profit down the road.

The agreement between the bondholders and Canwest Global will see the Aspers invest up to $15 million in a restructured company, or a roughly 10% stake, with a raft of conditions.

"Canwest has not made any determination with respect to the terms of any proposed equity investment by the Aspers or any other parties but welcomes the commitment of the Asper family to assist Canwest in achieving a successful recapitalization," the broadcaster said in a statement Tuesday.

That commitment may well include the Aspers helping convince the CRTC that Canwest Global will remain in Canadian control even as its destiny is controlled by U.S. bondholders.
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