The Securities and Exchange Board of India (SEBI) has ordered a little-known company with links to businessman Mahendra Nahata and billionaire Mukesh Ambani to make an open offer to shareholders of New Delhi Television Ltd (NDTV).
The order came after the capital markets regulator determined that Gurugram-based trading firm VCPL had indirectly acquired a majority control in the media company nine years ago.
In its order late on Tuesday, SEBI asked VCPL to make the public offer within 45 days. It also ordered VCPL to pay, along with the offer price, a 10% interest to shareholders who were holding shares on the date it violated SEBI's takeover norms.
Shares of NDTV jumped by the maximum permissible limit of 20% on the stock exchanges on Wednesday to close at Rs 39 apiece.
SEBI’s order tracks the matter all the way to 2008, when NDTV’s promoters made an open offer to the public and availed a loan of Rs 540 crore from Indiabulls Financial Services Ltd to finance that share purchase.
To repay the Indiabulls loan, it took a loan of Rs 375 crore from ICICI Bank. This bank loan, in turn, was repaid in 2009 by taking Rs 350 crore in loan from VCPL.
SEBI observed that NDTV's promoters issued warrants to VCPL that were convertible into equity shares. The transaction was "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,” SEBI said.
The regulator said this shows that the takeover exercise has been couched as a loan agreement and that VCPL's main intention was to acquire control over NDTV without contemplating any repayment of the loan.
SEBI’s findings showed that VCPL acquired a 52% stake in NDTV through the convertible loan of Rs 350 crore in 2009 from Reliance Strategic Investment Ltd, a subsidiary of Ambani-led Reliance Industries Ltd. Later, VCPL’s ownership changed hands from RIL to the Mahendra Nahata group, according to multiple media reports.
In 2010, RIL had bought Nahata's Infotel Broadband Services Pvt. Ltd to re-enter the telecom business. The deal was announced just after Infotel became the only company to get pan-India wireless broadband licence in an auction. Infotel was later renamed Reliance Jio Infocomm Ltd.
Meanwhile, NDTV said in a stock-exchange filing on Wednesday that promoters Prannoy Roy and Radhika Roy, individually and through their company RRPR Holding Pvt. Ltd, continue to own a 61.45% stake in the media company.
In its order, SEBI explained that the loan and call option agreements between the media company and VCPL appeared to have been used to shroud the true nature of the transaction, which was the acquisition of beneficial interest in NDTV.
"The elaborate mechanism adopted by the noticee (VCPL) 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 said.
As per SEBI's takeover regulations, an entity is required to make a mandatory offer to acquire 26% of shares from public shareholders if the ownership in the target company crosses 25%.
SEBI is also understood to have issued show-cause notices in this case to NDTV's promoters for alleged non-disclosure of the loan pact with VCPL and affiliate entities.