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Friday, June 2, 2023

The Financial Shenanigans of NDTV – With Help From Mukesh Ambani

Security and Exchange Board of India (SEBI) has ordered Vishwapradhan Commercial Pvt Ltd (VCPL) to make an open offer to acquire shares of NDTV, as per two recent reports in The Indian Express and The Economics Times.

Those from the public who are holding shares in NDTV can now sell their shares to VCPL, which had directly or indirectly acquired 52% of NDTV in 2009.  Since the original acquisition was nine years earlier, SEBI has said that an interest of 10% p.a. should be paid to those whose shares are being acquired today.  There is no indication in the report about the exact price that VCPL had acquired the shares at.  But, if the interest is paid in a compounded manner, the acquisition price today would be nearly 2.5 times the price then.

In 2008, NDTV promoters (Pranoy Roy and Radhika Roy) had made an open offer to acquire NDTV shares from the public, to boost their shareholdings in the company. There is no information in the above reports about the offer price, and what would have been the shareholdings of the promoters after the open offer.

What is, however, known is that a loan of Rs 540 crores was taken from India Bulls to fund the acquisition. It is unlikely that at the time, the promoters had sufficient assets to pay the loan by themselves. This leads to speculation that the shares would then be sold to others at a price higher than the acquisition price, and thus make a neat pile of money in the process.

It is known that these plans did not work out as expected. The promoters were then forced to seek loans from other institutions to repay India Bulls. The SEBI report says that the ICICI Bank stepped in, and gave a loan of Rs 375 crores which was used to repay India Bulls. The question is what happened to the balance of Rs 65 crores, plus whatever interest that would have accrued till then.

It would seem that there was difficulty to repay the ICICI Bank loan too, and so VCPL gave a loan of Rs 350 crores to the promoters in July 2009. Again, what happened to the balance of Rs 25 crores and the interest that would be due? Interestingly, the SEBI report says that the terms of the VCPL loan were generous – namely there was no repayment schedule nor was any interest to be charged. Clearly the loan was not a simple financial transaction, and the intent seems to have been to acquire shares in NDTV, as will be analyzed below.

Additionally, at the time, there were agreements between two companies – associates of VCPL, and the promoters – that would give the former a right to acquire 26% of NDTV by buying the shares that the promoters are today holding. There is no indication about the price to be paid to the promoters, nor is there any indication how much would be the share-holding of the promoters after this acquisition.

Interestingly, the reports say that the loan of Rs 350 crores would be converted into shares of the promoter’s company through which the shares of NDTV are held.

Thus, the loan was not a loan but a back-door (?) method to acquire shares in NDTV. This would give an impression that the objective was to by-pass the SEBI rules to make a public offer, something  that the SEBI report alludes to.

This impression is reinforced when one looks at what is said about VCPL.  In 2017, the revenue of the company was Rs 60,000, but it had assets in form of long-term loans and advances of Rs 400 crores. There is no indication about the equity of the company, but it seems to have received a loan from Reliance Strategic Investment Ltd, a wholly owned subsidiary of Reliance Industries Ltd, the flagship of the Mukesh Ambani group. The SEBI report says that VCPL did not have any ‘worthwhile history of such lending activity’, meaning that it was a vehicle to route money of the Mukesh Ambani group to the promoters of NDTV.  A false impression of an arm’s-length transaction was sought to be created.

A Reliance Industry spokesman said that VCPL does not belong to the Mukesh Ambani group anymore – meaning it did own the company at the time the loan was given to the promoters as individuals.  The Indian Express article said that VCPL was sold to an entity called Nahata group.  There is no indication of the price at which the company was sold, nor is there any indication of the status of the Rs 350 crores loan given to the promoters of NDTV.

Clearly, a lot of financial shenanigans seem to have happened. That this has been indulged by one of the three largest business groups in Bharat, makes the whole thing even more repulsive.  While the letter of the law may have been followed scrupulously, has the spirit been adhered to? Like other past events, it seems that the Mukesh Ambani group thinks that the spirit of the law does not really apply to them.

It should also be realised that these large sums of money are coming from the business of the Mukesh Ambani group, and not from personal wealth. From what has been mentioned, the returns on the loans will not conform to the normal expectations.  In which case, is this not being dishonest to the other shareholders who have had no say in the decision-making process? Since the first loan was from a subsidiary of Reliance Industries, did the directors of the subsidiary and of the parent company agree to the loan, and the generous terms? And, at the time, was the information about the true intent of the loan provided?

This type of behavior breeds a lot of cynicism amongst those who have a deep desire to do things properly, and scrupulously follow the law of the land in the way it is meant to be. The ability to get away with such shenanigans gives a most unfair competitive advantage to those indulging in it. Either the others follow suit, making the shenanigans even more serious, or stay away from the business, which reduces the opportunities for growth.

One does hope that the Mukesh Ambani group does not contest the SEBI instructions, and completes the process of the open offer within the 45 days given. Such an action will begin to bring back the faith of people, particularly the small investors, that the rich have started to look at the interest of the nation and not just of themselves.

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