Bennett Coleman & Company Ltd (BCCL) is hiking its stake in consumer durable and energy firm Videocon Industries. The additional stake buy is valued at Rs 200 crore. The media firm which strikes ad-for-equity deals with small and mid sized firms is picking 1.17 crore warrants at a price of Rs 170 per unit (82% premium to the last trading price of Videocon).
The warrants (convertible within 18 months), when converted into equity will hike BCCL’s stake in Videocon from 1% currently to 5.7%.
BCCL had originally picked this 1% odd stake in late 2005 for around Rs 100 crore. With the warrants issue it would have invested(or rather posted Videocon ads on its media publications and channels) around Rs 300 crore at an average acquisition cost of Rs 214/share.
The latest deal can be seen as an averaging strategy for BCCL which had initially invested at a price of Rs 430/share three and half years back. Incidentally Rs 431 is the one year high price of the scrip which is now trading at Rs 93, a value erosion of around 80% for BCCL on its initial transaction.
BCCL is also likely to be pick additional stake in realty firm MVL (which was demerged from consumer electronics firm Media Video and got listed last year). MVL board is meeting next week to consider the proposal to issue optional zero coupon convertible warrants/ zero coupon fully convertible unsecured debentures on preferential basis to BCCL and to Dainik Bhaskar Group.
BCCL already holds 3.35% in MVL which is a north India focused real estate developer. This stake is valued at Rs 11 crore nearly half of what it was in June 2008.
AD-FOR-EQUITY STRATEGY A MIXED BAG!
BCCL which has been very aggressive in striking deals through its private treaties unit over the last 5-6 years has burnt its fingers when markets crashed (in January 2008) before its ad-for-equity investments in various companies matured and the company could encash on it. The media giant which was also banking on pre IPO transactions is also facing exit problem in companies which were lined up for IPOs but couldn’t takeoff due to the state of the markets.
Last December, BCCL made a partial exit from jewellery maker Rajesh Exports after taking 20% haircut. In 2007 it had exited its investment in Deccan Aviation (now Kingfisher Airlines) when UB Group acquired stake in the low cost airline.
As against Deccan Aviation where it had exited at a profit after completion of one year lock-in period for its pre IPO transaction, BCCL made a loss in case of Rajesh Exports. At one time however BCCL was sitting on almost 7x profits in Rajesh Exports when the bull run was at its peak but it couldn’t cash out as it had a three year lock-in in case of the jewellery firm.
BUT COULD HAVE POCKETED AROUND RS 300 CRORE FROM HDFC BANK LAST QUARTER
In the previous quarter, when markets crashed in October-November post Lehman Bros bankruptcy, BCCL also appears to have sold shares of one of its early portfolio companies HDFC Bank. The media firm which had picked stake in the second largest private lender nine years ago as a result of sale of Times Bank to HDFC Bank, held around 2% stake in HDFC Bank as of September 2008. It had been maintaining this holding for more than eight years.
Its holding came down by around 0.8% during the previous quarter to 1.26% as of December end. Given the average share price of HDFC Bank during the quarter, BCCL could have pocketed somewhere around Rs 300 crore out of the partial exit from the bank. This surely was a profitable deal as HDFC Bank’s share price has moved up close to four times over the last nine years. BCCL still holds 1.26% stake in HDFC Bank which is valued at Rs 555 crore($108 million) in the market.