New Silk Route (NSR) has initiated discussions to buy out its private equity peers New Vernon, Kotak and Temasek in the troubled broadcasting firm INX Media Pvt Ltd. The exiting investors will carry a small pay cheque but only after taking a significant haircut as the floundering media outfit is working on a turnaround story.

NSR's latest move to buy out other INX shareholders comes in the backdrop of the firm’s restructuring exercise taking off finally. VCCircle had earlier reported that NSR was prepared to invest further into the firm if the board appointed consultant, Pradeep Guha, a media industry veteran, came up with a viable turnaround plan. The four PE investors, who committed $170 million three years back, are now the overwhelming shareholders after the original promoters Peter and Indrani Mukerjea made a sudden exit with the company running out of cash in early 2009. 

"NSR is buying out the other PEs and it has reached an understanding with two out of three investors. It is still discussing the valuation with the third. The payout will not be significant, but it would be better than losing everything," said a source familiar with the developments. 

So, as part of the restructuring, INX is divesting its general entertainment channel (GEC) 9X to Zee Tele Films. The channel will be de-merged after settling INX's creditors, who have Rs 90 crore exposure and had threatened winding up petitions in the recent past. The sale of GEC channel to Zee will bring in about two-third of the liquidity for settling these creditors, while NSR will bring in the remaining one-third required to clinch it.

Following the creditor settlement and de-merger, NSR along with media specialist Pradeep Guha will recapitalise INX Media, which will then focus solely on its music channel 9XM. A roadmap is being prepared to expand 9XM into different music genres. 9XM claims leadership position even as it vies with established international players MTV and Channel V in India. Once the operations are stabilized, Guha, who will spearhead the management with an equity stake, may also work on showing up with a movie channel.

One source said, NSR will be infusing "well under $50 million" towards settling creditors, buying out other investors and recapitalizing the company. The figure could be more towards $30 million, added a second source, even though it could not be confirmed independently.

NSR declined to comment, while an emailed query to INX Media remained unanswered.

While the current shareholding pattern is not known, the PE investors now have complete control over the company, where they initially had 50% with Mukerjeas (original promoters) and the employees holding the rest. VCCircle learns that the company suffered losses of Rs 446 crore with an income of Rs 132 crore in FY09. 

Zee's Ambitions

With 9XM (the music channel) being the profitable venture, why is Zee buying the loss-making general entertainment channel? Media sector observers say, the deal would translate into a tax writeback to the tune of Rs 200 crore for Zee.

“In all likelihood, Zee may look at rebranding the channel as a sports channel”, added Rohit Dokania, lead media analyst at B&K Securities. Zee already has Ten Sports and it had plans of launching a Golf Channel and another centred round hockey & football.

With this deal, the company also gets an on-air license when obtaining one from the ministry is still a tough proposition. The GEC space is currently dominated by three players: Colors of Viacom 18 Media Private Ltd, Star Plus of Star India Pvt. Ltd and Zee TV of Zee Entertainment Enterprises Ltd.

INX Saga

NSR’s interest now lies solely on the only profit making venture which is 9XM within the INX Network. With the other two loss-making entities within the network already being sold--9x to Zee Networks and INX News to Vinay Chhajlani, promoter of Indore-based regional dailies Naidunia and Nav Dunia--it now remains to be seen what plan the PE major has in mind for the entity. 

Dokania pegs the top line of 9XM at Rs 70 crore to Rs 100 crore compared to MTV’s Rs 200 crore. While pure–play music might not prove to be a high growth rate venture, it has to be seen if 9XM will also include elements of general entertainment in its bouquet of programming. MTV which began as  70:30 music to GEC play is now 70:30 GEC to music.

PE Courtship with Media

There have been many private equity investments in the space, a few notable ones include IDFC Investment Advisors putting in $5.56 million into DQ Entertainment, DAR Capital’s $21.37 million investment in Valuable Media Ltd and SAIF Partners buying into Network 18 Media & Investments Ltd.

INX Media Networks raised PE money in 2007, a year that saw a lot of media investments and had the private investment industry buoyed by it. BAG Films & Media Pvt. Ltd, UFO Movies India Ltd, MidValley Entertainment are some of the companies which raised monies during that period.

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