The Securities Exchange Board of India (SEBI) yesterday ordered Vishvapradhan Commercial Pvt Ltd (VCPL) to make a public offer for acquiring shares of NDTV..The order follows a probe into alleged violation of SEBI Takeover Regulations by VCPL regarding a loan, with a 10-year tenure ending July 2019, with various clauses giving it control for up to 52% of NDTV..In 2008, an open offer was made by the Promoters of NDTV (i.e. the RRPR Holding Pvt Ltd., Prannoy Roy and Radhika Roy). For this purpose, the Promoters availed of a loan of Rs. 540 crores from Indiabulls Financial Services Ltd. To repay the said loan, another loan of Rs. 375 crores was taken from ICICI Bank. The loan taken from ICICI Bank was repaid in the year 2009 by taking another loan of Rs. 350 Cr from VCPL through a loan agreement executed on July 21, 2009 (Loan Agreement)..In addition to the Loan Agreement, two more agreements were executed on the same day with two affiliates of VCPL; (i) call option agreement between VCPL and Shubhgami Trading Pvt Ltd and; (iii) call option agreement between VCPL and Shyam Equities Pvt Ltd..As collateral, VCPL was given certain absolute rights; meaning these rights were available irrespective of whether the loan was repaid or not. Firstly, convertible warrants in favour of VCPL aggregating to 99.99% of RRPR’s equity which after conversion translated into 26% of NDTV’s equity. Secondly, purchase option to buy all equity in RRPR held by Prannoy and Radhika Roy was given to VCPL, even when there was no conversion. Thirdly, call option was available in favour of VCPL’s associates to purchase up to 26% of NDTV at a fixed price that was much above the prevailing market price of the scrip..These absolute rights were among the several causes of suspicion which SEBI basis its findings on..The SEBI also noticed that the mere repayment of the loan was not a sufficient condition for termination of all the three agreements and the loan was offered at zero interest rate. This lead to a belief that the main purpose or the underlying motive behind executing the loan agreement was to acquire a beneficial interest in the shares of NDTV rather than receive financial returns from the loan advanced to RRPR. The SEBI ruled,.“In effect, the transaction is not to secure the loan but to acquire control over all the affairs of the Target Company leaving only the right to control the editorial policies of NDTV to the Promoters and Borrowers, right from the day of execution of the loan agreement”.The SEBI further examined the Memorandum of VCPL, according to which its main objective was wholesale trading and related business activities. Thus, the SEBI was of the view that the elaborate mechanism adopted by VCPL and its associates was to deflect attention from this acquisition and thus covetously overcome the obligations imposed by the Takeover Regulations..The SEBI in furtherance of this also noted that in the year ending March 2017, VCPL was shown to have a revenue of only Rs. 60,000 but on its asset side had more than 400 crores in long-term loans and advances. These reports as provided by VCPL, according to SEBI, question its motive of entering into the transaction with the promoters of NDTV Ltd. This coupled with the zero interest rate lead to these findings,.“A company or financial institution in the general practice of lending may be expected to have such exceptional clauses in loan agreements. Instead, in the current set of facts and circumstances, it is clear that the VCPL 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 it appears that the loan agreement and call option agreements were used to shroud the true nature of the transaction which was acquisition of beneficial interest in NDTV Ltd.”.Accordingly, SEBI directed VCPL to make an open offer and to pay 10% interest along with offer price to shareholders who were holding shares in NDTV when the stake was acquired..(Read the order)
The Securities Exchange Board of India (SEBI) yesterday ordered Vishvapradhan Commercial Pvt Ltd (VCPL) to make a public offer for acquiring shares of NDTV..The order follows a probe into alleged violation of SEBI Takeover Regulations by VCPL regarding a loan, with a 10-year tenure ending July 2019, with various clauses giving it control for up to 52% of NDTV..In 2008, an open offer was made by the Promoters of NDTV (i.e. the RRPR Holding Pvt Ltd., Prannoy Roy and Radhika Roy). For this purpose, the Promoters availed of a loan of Rs. 540 crores from Indiabulls Financial Services Ltd. To repay the said loan, another loan of Rs. 375 crores was taken from ICICI Bank. The loan taken from ICICI Bank was repaid in the year 2009 by taking another loan of Rs. 350 Cr from VCPL through a loan agreement executed on July 21, 2009 (Loan Agreement)..In addition to the Loan Agreement, two more agreements were executed on the same day with two affiliates of VCPL; (i) call option agreement between VCPL and Shubhgami Trading Pvt Ltd and; (iii) call option agreement between VCPL and Shyam Equities Pvt Ltd..As collateral, VCPL was given certain absolute rights; meaning these rights were available irrespective of whether the loan was repaid or not. Firstly, convertible warrants in favour of VCPL aggregating to 99.99% of RRPR’s equity which after conversion translated into 26% of NDTV’s equity. Secondly, purchase option to buy all equity in RRPR held by Prannoy and Radhika Roy was given to VCPL, even when there was no conversion. Thirdly, call option was available in favour of VCPL’s associates to purchase up to 26% of NDTV at a fixed price that was much above the prevailing market price of the scrip..These absolute rights were among the several causes of suspicion which SEBI basis its findings on..The SEBI also noticed that the mere repayment of the loan was not a sufficient condition for termination of all the three agreements and the loan was offered at zero interest rate. This lead to a belief that the main purpose or the underlying motive behind executing the loan agreement was to acquire a beneficial interest in the shares of NDTV rather than receive financial returns from the loan advanced to RRPR. The SEBI ruled,.“In effect, the transaction is not to secure the loan but to acquire control over all the affairs of the Target Company leaving only the right to control the editorial policies of NDTV to the Promoters and Borrowers, right from the day of execution of the loan agreement”.The SEBI further examined the Memorandum of VCPL, according to which its main objective was wholesale trading and related business activities. Thus, the SEBI was of the view that the elaborate mechanism adopted by VCPL and its associates was to deflect attention from this acquisition and thus covetously overcome the obligations imposed by the Takeover Regulations..The SEBI in furtherance of this also noted that in the year ending March 2017, VCPL was shown to have a revenue of only Rs. 60,000 but on its asset side had more than 400 crores in long-term loans and advances. These reports as provided by VCPL, according to SEBI, question its motive of entering into the transaction with the promoters of NDTV Ltd. This coupled with the zero interest rate lead to these findings,.“A company or financial institution in the general practice of lending may be expected to have such exceptional clauses in loan agreements. Instead, in the current set of facts and circumstances, it is clear that the VCPL 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 it appears that the loan agreement and call option agreements were used to shroud the true nature of the transaction which was acquisition of beneficial interest in NDTV Ltd.”.Accordingly, SEBI directed VCPL to make an open offer and to pay 10% interest along with offer price to shareholders who were holding shares in NDTV when the stake was acquired..(Read the order)