KirchGruppe on verge of insolvency

KirchGruppe, the German media group owned by Leo Kirch, was on the brink of insolvency on Friday April 5 as rescue talks in Los Angeles and Munich failed to produce an escape route for the debt-laden company.

Should KirchGruppe be declared insolvent – and according to a Kirch union representative, "insolvency is as good as certain" – the implications will be huge, not only for the broadcast industry but also for the banking and financial markets and sports events.

Up to eight major German banks could be hit by the writing-off of the Kirch's mammoth €5.7 billion debt mountain. Bayerische Landesbank are the group's biggest creditor to the tune of €1.9 billion, Deutsche Bank are owed €700 million and both DVB and Dresdner Bank are owed €460 million. However, the banks moved quickly to dispel any fears, stating that there would be sufficient financial collateral to cover any losses.

"Banks' bad-loan provisions will rise as much as 15 percent this year because of Kirch and possible bankruptcies of other medium-sized companies may occur,'' said Konrad Becker, an analyst at Merck Finck.

The severe financial straits that British Nationwide League clubs are facing in the wake of the ITV Digital collapse will be mirrored in the Bundesliga as failed pay-TV venture Premiere – haemorrhaging around $1 million a day – winds down.

Some German league football clubs are heavily reliant on the money they receive from TV rights and the insolvency fears at Kirch has forced the government to intervene.

The Bundesliga were to be paid €360 million this year and €460 million for the final year of the broadcast contract. The government has steadfastly refused to bail out the company; however, the shortfall in revenue to the clubs is likely to be wholly or partly funded by the government.

"The order of the day is to think about the possible consequences for Germany's top soccer league," economics minister Werner Mueller said.

If insolvency goes forward as expected, the fight over Kirch assets will be intense – the jewel being the World Cup and Grand Prix rights. Rupert Murdoch's BSkyB, which has a 22 per cent stake of Kirch PayTV and Italian Prime Minister Silvio Berlusconi's rival interests will pick over what remains.

Kirch Premiere PayTV is where most of the damage to the corporation has occurred. For 2001, the company posted a core loss of €864.9 million with debts of €962 million. The Kirch platform has 2.4 million subscribers but is falling well short of growth targets and debts in that company alone, which have been mounting since 1997, now total €3.2 billion.

KirchGruppe, www.kirchgruppe.de

(GMcG)