Reliance Industries Ltd (RIL) has entered the media and entertainment sector by making a major investment in the Raghav Bahl-controlled Network18 Group,one of Indias largest broadcast companies that owns several news channels and has significant interests in the film and general entertainment broadcast businesses.
In an effort to consolidate its presence in the sector,RIL is also divesting a majority of its stake in the Hyderabad-based Eenadu Groups various broadcast channels to the Network18 Group.
RIL,through a newly-created vehicle,Independent Media Trust,is infusing funds in the form of loan (or optionally convertible debentures,which is a kind of a loan that can be converted into equity depending on the conditions agreed upon by the parties concerned) into Network18 Media and Investments Ltd (NMIL),the groups holding company,and TV18 Broadcast Ltd,the flagship company.
The two companies today announced two rights issues of up to Rs 2,700 crore each. Since NMIL is the promoter of and a majority shareholder in TV18,it will subscribe to around Rs 1,400 crore worth of shares in TV18s rights issues. The net rights issues of both the companies,therefore,will amount to a fundraising of Rs 4,000 crore. RIL will provide funds to promoters to pick up their tab in the two issues and of the other shareholders as well in case they decide to stay away from the fundraising.
While the BSEs 30-scrip Sensex was strong and rose 2.72 per cent today,both the Bahl companies NMIL and TV18 jumped 20 per cent each. Reliance shares closed 2.37 per cent higher.
TV18 will use a large part of the funds raised through this issue to buy out Rs 2,100 crore worth of investment out of RILs total investment of Rs 2,600 crore across Eenadu channels,and the rest to pay back its existing debt and to meet its working capital requirements. TV18 has the option to buy the rest of the investment as well.
NMIL,the holding company of the Network18 Group,is currently in a precarious financial situation. The company had a net debt of Rs 1,000 crore at the end of the quarter ended March 2011,which rose to around Rs 1,400 crore in the quarter ended September 2011. The companys shares had slid nearly 70% during the preceding 12 months or so.
RIL has emerged as a saviour for the Network18 Group. It is not only helping the company clean up its books but also in entering the fast growing regional broadcast market, said a Mumbai-based investment banker. The question to be asked,however,is why will RIL do this? It doesnt seem like a very lucrative investment opportunity going by the broadcast sectors,and especially the news broadcast sectors,past performance, he said.
Media observers point out that for now RILs investment in the Network18 Group companies is in the form of debt,but it has the option of converting this into equity in future. In case RIL decides to exercise that option,it will clearly be the largest stakeholder in the group, said the director of a Mumbai-based brokerage.
Media observers say that even in the current arrangement,being such as massive lender,RIL will have a lot of influence over the broadcast group. Some even hinted that this may simply be a back-door entry by RIL into the media and broadcast business.
It is a very shrewdly structured deal. On the one hand,it secures RILs interest in the group; on the other,it keeps the sanctity of the business intact by letting Network18 promoters keep management and editorial control, said the investment banker.
In a statement today,RIL said Bahl and his team will continue to have full operational and management control of both the companies. RIL also maintained that the arrangement will benefit RILs telecom arm Infotel Broadband Services Ltd,which in fact has entered into a memorandum of understanding with Network18 to have preferential access to all broadcast and digital content generated by Network18 and Eenadu channels.
Once the deal is completed,the Network18 Group will have around 25 channels in its pan-India bouquet across genres including general news in English,Hindi and several regional languages,business news,general entertainment across languages,and a childrens channel.
I am convinced that this acquisition is a significant move that will catapult TV18 into the forefront of Indias broadcast industry, Bahl said in a statement.