Researched by: Rachel John & Ayaan Malhotra 

NDTV’s fall from grace

Prannoy and Radhika Roy ushered a bold new era in Indian television when they launched NDTV in 1980. Indians finally had a real alternative to the government-sanitised news peddled by Doordarshan. Much as other first-time entrepreneurs in the early days of liberalisation, the Roys were wildly ambitious and successful. In 2004, having launched multiple channels, NDTV went public. 

But in 2007, the Roys made a financial move that would haunt them for years to come:

• They bought back a 7.73% stake in NDTV held by GA Global Investments at a price higher than the market value—as is usual in these transactions. They paid Rs 439 for each share worth Rs 400.
• Any such move by a majority shareholder automatically triggers an “open offer”—giving minority shareholders the opportunity to sell their stake in the market. 
• To buy up these shares—and consolidate their stake—the Roys took a loan of Rs 5.01 billion (501 crore) from IndiaBulls Financial Services.
• Unfortunately, the global economy soon went into a giant meltdown in 2008—and the NDTV share value plummeted from Rs 400 to Rs 100 within months.
• But the Roys still had to repay IndiaBulls. So in 2008, they took a Rs 3.75 billion (375 crore) loan from ICICI at an annual interest rate of 19%.
• More importantly, they put up their entire 61.45% stake in the company as collateral. This included the Roys' personal stake plus the shares held by Radhika Roy Prannoy Roy Holdings Private Limited (RRPR), an entity they set up in 2005.

Enter Mukesh Ambani: In 2009, to repay ICICI, the Roys took a loan of Rs 3.5 billion (350 crore), from an entity named Vishvapradhan Commercial Private Limited or VCPL. Now, VCPL was, in essence, a shell company with no assets—which secured the funds to loan to the Roys from another company: Shinano Retail. And where did Shinano get the money to lend to VCPL? Answer: Reliance Industrial Investments and Holdings. In fact, Shinano was a wholly owned subsidiary of the Reliance Group. 

Making things even murkier: At the time, VCPL was owned by Shinano (with whom it shared the same biz address) and another company called Teesta Retail Private Limited. Teesta was also wholly owned by Reliance Industrial Investments and Holdings. And VCPL’s directors were also senior executives at Reliance Industries.

The price of the loan: lay in its terms. The Roys first had to transfer a chunk of their personally held stock to RRPR—increasing its NDTV stake from 15% to 26%. In exchange for that interest-free infusion of cash, VCPL was given warrants—which are “a contract that gives the right, but not the duty, to buy or sell a security—most usually, equity—before expiry at a certain amount.” These warrants gave VCPL total control of RRPR:

“The agreement gave VCPL the right to convert the loan into 99.99% of RRPR’s equity—effectively, complete ownership—not just during the period of the loan but even after—‘at any time during the tenure of the Loan or thereafter without requiring any further act or deed on the part of the Lender.’ Puzzlingly, this meant that regardless of repayment, VCPL could officially take over RRPR at any time it wanted.”

Point to note: RRPR’s stake in NDTV jumped again in 2010—when the Roys transferred another 3.18% of their personal stake to RRPR—taking its total share in NDTV to 29.18%. In return, VCPL paid an additional Rs 538 million (53.85 crore) to RRPR—making the total loan amount Rs 4.03 billion (403.85 crore).

Enter Gautam Adani: 

• In 2012, VCPL’s ownership changed hands. The new owners—Nextwave Televenture Private Limited and Skyblue Buildwell Private Limited —were still connected to a Reliance director, Mahendra Nahata. 
• Nahata also owned Eminent Networks—which took over the Shinano loan to VCPL. FYI: the loan has since been recorded as paid even though VCPL appears to have only given back Rs 500 million (50 crore) of the Rs 4 billion (400 crore) borrowed.
• The Damoclean sword hanging over the Roys finally dropped on Tuesday when Gautam Adani bought VCPL for Rs 1.13 billion (113.75 crore). And he immediately called in the NDTV chits—giving him 29.18% of the company.
• Translation: Mukesh-bhai sold his effective stake in NDTV to Gautam-bhai in a fully ‘made in Gujarat’ deal.

Memories of Network18…

In 2014, Reliance took over Network18 using a similar—but far more convoluted— strategy. Saddled with Rs 14 billion (1,400 crore) in debt, owner Raghav Bahl turned to Mukesh Ambani for help. The company received Rs 17 billion (1,700 crore) from the Independent Media Trust–an entity set up by Reliance. In return, IMT got zero-coupon optionally convertible debentures (ZOCDs) in six promoter companies that collectively held 71.25% stake in Network18. These ZOCDs could be converted into equity shares anytime within 10 years. 

Within two years—days after Narendra Modi won his first election—Reliance announced it was taking over Network18 for Rs 40 billion (4,000 crore). But Business Standard parsed the complicated transactions involved to conclude this: in the end, Mukesh-bhai only spent Rs 13 billion (1,341 crore) to acquire the largest media conglomerate in the country—which was valued at Rs 42 billion (4,295 crore) at the time. That’s lower than the amount owed by Raghav Bahl when he inked the deal with Reliance. Wah!

Irony alert! Bahl recently inked a deal with Adani—who has bought a 49% stake in the business arm of his Quint Digital Media. But the sale only involves Quintillion Business Media (QBM)—and not Quint’s other holdings. These include a 34.6% stake in Youth Ki Awaaz and 47.92% of Spunklane Media Private Limited, which operates The News Minute.

Full disclosure: Our CEO/Editor Lakshmi Chaudhry is the co-founder of Firstpost—where she was the executive editor from 2011 through 2015. Firstpost is a wholly owned subsidiary of Network18.

What’s next for NDTV? 

The Adani Group’s media arm—AMG Media Networks Ltd—now owns 29.18%, and has launched an open offer to buy another 26% on the market. Adani has offered to pay Rs 294 per share—which is 20.5% lower than the market price of  Rs 369.75 rupees.” So he is poised to mop up a 55.18% stake in NDTV. The Roys still hold 32% of their company—which is still more than Adani.

But all eyes are on two sets of investors who may give him the edge. There are four companies with common directors that together own 7.11%—and LTS Investment Fund which owns 9.75%—but also has a number of investments in Adani’s companies. If they sell, it will bring Adani’s share to over 46%. 

Point to note: The Roys made it clear that Adani’s purchase of the NDTV stake happened without their knowledge or consent—which is why everyone is talking about a “hostile takeover.” In contrast, when Reliance took control of Network18, Bahl and his wife and co-owner Ritu Kapur declared:

“Believe us, the group (Network18) is in terrific hands. Mr Ambani is a visionary and a truly good human being. And, we have no doubt Network18 will soar into the ‘cloud’ under this dispensation. All of you have very good cause to be excited and optimistic about the future...God bless you and God bless Network18.”

The bottomline: The moral of this story: it’s best not to borrow money from any piper named Mukesh Ambani.

FYI: Our founder owns 95% of Splainer Pte Ltd, while 5% is held by our technology partner BlackCurrant Apps. And we’ve raised $100K from angel investors in CCDs—all of whom are splainer subscribers. Just saying… because it is always good to know who owns the media you consume.

Reading list

Indian Express and Scroll have the most details on the Adani purchase—plus NewsLaundry has more on the Reliance connection. If you’re interested in revisiting the Network18 saga, EPW and Mint have the most details—while Business Standard decodes the dizzying financial gymnastics involved. Economic Times looks at Adani’s media ambitions. And if it makes you feel any better, check out Al Jazeera’s report on Adani’s overleveraged finances. Yes, he is heavily in debt, as well—though presumably not to Mukesh-bhai.