SEBI orders little-known company VCPL to bid for NDTV in 45 days; NDTV claims no shares transferred

Last Updated: Wed, Jun 27, 2018 16:50 hrs
Is the NDTV India ban yet another attack on press freedom?

New Delhi: The Securities and Exchange Board of India has issued a show cause notice to Prannoy Roy, Radhika Roy and RRPR (Radhika Roy Prannoy Roy) Holdings Pvt Ltd over charges of non-disclosure of a loan agreement which the company entered into with VCPL.

On Tuesday, SEBI published a 28 page report signed by G Mahalingam, a wholetime member with serious observations. G Mahalingam is the former Executive Director of the Reserve Bank of India.

The Sebi directive found that RRPR Holding's agreement with VCPL for an unsecured loan without any interest payment was questionable. Sebi said the agreement helped Vishvapradhan Commercial Private Limited (VCPL) acquire shares of NDTV two ways — "indirect acquisition of convertible warrants of the holding company; and by purchase of a freely exercisable call option to buy 26 per cent shares of NDTV."

Sebi said the NDTV promoters had made an open offer in 2008, and had taken a loan of Rs 540 crore from Indiabulls Financial Services Ltd. To repay this loan, another loan of Rs 375 crore was taken from ICICI Bank, which in turn was repaid in 2009 by taking Rs 350 crore loan from Vishvapradhan through an agreement of July 21, 2009.

In its 28 page order, SEBI directed Vishvapradhan Commercial Privated Limited to make a public offer to acquire shares in NDTV Ltd within 45 days. The order found merit on the grounds that VCPL had indirectly acquired a 52% controlling stake in the telvision company in 2009 after it gave a Rs 350 crore loan to be repaid at no interest over a period of ten years. SEBI said in its order that VCPL had violated the norms in raising convertible bonds as loans.

According to the directive, the loan transaction was "not to secure the loan but to acquire control over all the affairs of the Target Company (NDTV)," leaving only the right to control "editorial policies of NDTV" to the Promoters and Borrowers, right from the day of execution of the loan agreement.

"Thus in my view, the takeover exercise has been conveniently couched as a loan agreement with the predominant intention of the Noticee (Vishvapradhan) being to acquire control over NDTV without contemplating any repayment of the loan, whatsoever, from the Promoters or Borrowers," reads a copy of the order.

The regulator itself found VCPL with a revenue of Rs 60,000 during 2017, but Rs 400 crore loans in long-term loans and advances. It opted from making further statements or observations.

SEBI in another letter dated March 25 2016 said the "source for the loan [lent by VCPL] was the borrowing from Reliance Strategic Investment Ltd, a wholly owned subsidiary of Reliance Industries Ltd."

RIL, which owned VCPL until 2010 sold it to Nahara group.

Reliance Industries Limited has significant stakes in Network 18. A Reliance spokesperson was quoted in a news report saying that the ownership in VCPL has been terminated.

Other Salient Observations from the order:

"I have perused the documents submitted by the noticee (Vishvapradhan) and in particular the financial statements included in the annual reports of the said companies and do not find that they had any worthwhile history of such lending activity."

"In the current set of facts and circumstances, it is clear that the noticee and its associate companies had neither the history of advancing such loans nor do they appear to have had the financial wherewithal to advance loans on such liberal terms."

"The elaborate mechanism adopted by the noticee and its associates appear to be solely to deflect attention from this acquisition and thus covetously overcome the obligations imposed by the takeover regulations."

SEBI directed markets regulator to direct VCPL to pay a 10% interest along with the offer price to the shareholders holding shares in NDTV when the stake was acquired.

"Indicates that the 'control' over the 26% of NDTV shares has effectively passed on to the lender and that the borrowers are only acting to the dictates of the lender. Moreover, the agreements do not provide that upon repayment of the loan amount within 10 years, the Call option agreements would cease to exist or lapse."

"The takeover exercise has been conveniently couched as a loan agreement with the predominant intention of the Noticee being to acquire control over NDTV without contemplating any repayment of the loan, whatsoever, from the Promoters or Borrowers."

The transaction documents admittedly confer Conversion Option, Purchase Option and the Call option, and if the voting rights is to give full effect to the Transaction Documents, it would straight away mean that the 52% of the voting rights of NDTV have to be exercised by the Promoters as per the dictates of the Lender and the same may traverse the specified Veto rights under Schedule 3."

NDTV's Reply

On Wednesday, NDTV released an official communication on its website.

The official communication reads:

"Promoters, Radhika and Prannoy Roy, are career journalists."

"At no point has control of NDTV's editorial policies or its business plans been directly or indirectly yielded to a third party."

"No shares have ever been transferred by the promoters to anyone else."

"VCPL, the company that gave the loan to the promoters, has never been represented by even one director on NDTV's board. NDTV has never ceded even an iota of editorial rights to anyone outside the company."

"The promoters reserve the right to contest any finding or verdict that suggests otherwise."

NDTV Shares soaring

Shares of NDTV soared by over 20% during the trading session, hitting a upper circuit limit at Rs 39. Analysts said that the action may have been triggered by another order from the Bombay High Court.

A bench of justices S C Dharmadhikari and Bharati Dangre of the Bombay High Court set aside objections and directed the Reserve Bank to consider compounding applications filed by NDTV over alleged violations of the FEMA (Foreign Exchange Management Act).