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In 2009, a Mukesh Ambani group entity took control of NDTVunder the guise of a loan agreement. The plan was to find a buyer in "three to five years". No buyer has been found so far and effectively, NDTV is controlled by the Ambanis
In July 2009, Vishvapradhan Commercial Pvt Ltd, a company associated with Reliance Industries Ltd (RIL) gave a loan of Rs350 crore without any interest to NDTV's Prannoy Roy, his wife Radhika Roy and their private holding company RRPR Holding Pvt Ltd. This was a bailout-cum-takeover in the guise of a loan.
The sole purpose of the loan was to repay funding obtained by Roys obtained from a bank, which is barred by the market regulator. Under the agreement signed on 21 July 2009, the Roys were to issue a convertible warrant that equals to 99.9% of the "fully diluted equityshare capital of the borrowers (the Roys and RRPR Holdings) at the time of conversion" and the Ambani group agreed to limit their aggregate shareholding to 26%.
Let us unravel for you this wonderfully structured "loan document" which effectively allowed Ambani to take over the company with a few key clauses.
1. Clause 6 of the agreement talks about the warrant; the details of what this mean are a part of Schedule 1, under terms of the warrant. This says "at the sole option of the lender (Ambanis)", the warrant can be converted into the underlying equity shares "at any time during the tenure of the loan or thereafter without requiring any further act or deed on the part of the lender". An agreement, which allows the lender to convert a warrant into share even after the tenure of the loan, can only be a sale.
2. The loan/sale had two conditions. First that the Roys would have to transfer 26% of their equity to RRPR Holdings through the sale of 1.63 crore equity shares. Secondly, that a company called NDTV Four Holdings Ltd, would invest $85 million in NDTV Studios Pvt Ltd and this would be brought into the parent company NDTV through a merger or some other means. The agreement does not go into details about what is this holding company and why the pre-condition of bring back $85 million to India, but we learn this is under investigation.
3. Another clue that this loan is actually a sale is in Clause 11. It says that the borrower RRPR Holdings will have only three directors; of these, the lender (read Ambani group) will nominate one. More importantly, there can be no quorum unless this nominee director is present at every board meeting. Of course, there is also an undertaking that the lender will not interfere with the editorial policies of NDTV, but we can surmise how effectively that would work.
4. Clause 19 is titled "Mutual Endeavour". It says that over the next three to five years the Ambani group and RRPR would look for a "stable" and "reliable" buyer for RRPR who will "maintain the brand and the credibility of NDTV". It is now over five years since the agreement was signed, which explains the rumours about the possible sale of this crucial holding that is key to the ownership of NDTV. But it also raises another question: were the Ambanis only bailing out NDTV for someone else? Ambani also owns Network 18 group and reportedly has stakes or has offered similar friendly bailout loans to several other media groups, making it among the largest media owners in India.
5. Now let us look at some more corroboration. The agreement on behalf of Vishvapradhan Commercial is signed by Mr KR Raja. A simple google search shows that Mr Raja is the same person, whose private telephonic conversation with lobbyist Niira Radia led to Reliance Industries issuing a profuse apology in June 2011, to P Chidambaram, the then Home Minister. More about Vishvapradhan Commercial's transactions and its connection with Reliance is available in this report in Newlaundry and e-magazine. Mr Raja also figures in connection with RIL's purchase of a stake in NewsX, which was subject of an investigation by the Serious Fraud Investigation Office (SFIO). This was reported by a media website called The Hoot.
6. Everybody knows that a loan agreement is concerned about interest and not valuation. This one is different. Schedule 3 (2) and sub clauses b, c and d to the loan agreement deals with issues relating to NDTV and the NDTV Group that need "prior written consent" of the Ambani company. It documents the minimum valuation of the group at Rs1,346 crores; any corporate action below this requires the lender's permission.
7. Other issues that require such consent pertain to the possible amalgamation, consolidation, merger of NDTV with any other entity, buyback of equity, reduction or alteration of its share capital or any action with regard to the share capital where by the promoters cease to be in sole control of NDTV and the NDTV group.
8. These clauses make it very clear that NDTV's promoters can do almost nothing without the consent of the Ambanis. Curiously, none of this is known to the public or to the shareholders and stock exchanges. While SEBI has recently imposed a fine of Rs2 crore on NDTV for a disclosure lapse of I-T notice, the non-disclosure of what it has signed in this loan document appears far more serious.
The iron-clad agreement signed by RRPR and the Roys with Vishvapradhan Commercial in 2009 make it clear that the Ambanis have had complete control over this group. But it is still not clear whether the group is the ultimate beneficial owner.
An email sent to NDTV has elicited no response. This story will be updated if and when we hear from the group.
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