The Hindu Business Line : Organised funding edges up in Hindi films

FRAMES 2004, the annual entertainment industry convention and Bollywood's date with corporatisation, may be showing signs of déjà vu. But a critical point consistently pushed by the tie-clad brigade appears to be paying off.

"Last year witnessed a significant shift in the context of financing sources for Hindi films. The number of Hindi films financed by (along with the quantum of finance) by organised sources (comprising IPO funds, institutional and bank loans, private equity and venture capital from institutions and private sources, directly or through investment vehicles and companies) in 2003, increased by 200 per cent from corresponding numbers available for Hindi films released in 2002,'' Rabo India Finance notes in the introduction to a recent study.

According to it, Rs 176.1 crore (spread over 33 film projects) was invested from such sources in 2003, up from Rs 55.6 crore (across 11 film projects) in 2002 and Rs 43 crore (across four film projects) in 2001.

Of the 2003 total for organised funding, 36 per cent is estimated to have been from IPO funds, 25 per cent from institutional loans, 16 per cent from institutional venture capital and private equity and 23 per cent from private venture capital and investors.

Notwithstanding their sharply risen share, these inflows still constitute less than 15 per cent of the total funding requirement of the mainstream Hindi film industry, said Mr Sunil Kheterpal, Head (Media & Entertainment), Rabo India Finance.

According to him, the new inflows reflect the industry's better organisation, including the advent of multiplex cinemas.

The latter opened up investment possibilities in niche films meant for specific audiences.

Multiplexes are also relatively modern and more efficient, thereby lending transparency to revenues.

To the extent such equity funding sources have picked up, Bollywood's dependence on traditional private debt financiers has dipped.

Within the debt funding segment, traditional sources with their less paperwork and now reduced interest rates, continue to be ahead of financial institutions competing for a slice of the pie.

However, talk of resultant unutilised funds at IDBI is hotly contested by FI officials, who attribute the perception to quick rotation of funds and point out instead that IDBI's total sectoral disbursement aggregates Rs 140 crore.

"When loans are disbursed and collected in a short while it would seem over a longer period of time like an unutilised corpus,'' said a senior IDBI official, agreeing otherwise (albeit more guardedly) with Rabo's tenor that organised funding is on the rise in Bollywood.

The Rabo study says that while funds through IPO, institutional loans and institutional equity investments have been available since 2001 and 2002, it is financing by high net worth individuals or through companies funded by them that gathered momentum in 2003 and promises to stay on into 2004.

One factor likely to catalyse inflows from private investors would be the emerging taste for global themes in Indian film content.

These trends need not mean a setback for institutional debt financiers.

Typically, FIs' appetite for risk is hedged with safeguards, including the director's track record.

At first glance, several of the films that found private equity assistance belong to the niche screening category or are offerings from upcoming directors.

The same directors may graduate later to availing institutional debt, Mr Kheterpal said. IDBI officials concur, though as with most things Bollywood a lengthier watch is always better advised.