Financial Daily from THE HINDU group of publications
Sunday, Jan 19, 2003
Financial Daily from THE HINDU group of publications Sunday, Jan 19, 2003 |
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Investment World
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Rights Issues Corporate - Rights Issues Industry & Economy - Investments Television Eighteen: Subscribe Suresh Krishnamurthy
THE SHAREHOLDERS of Television Eighteen can subscribe to the rights offer of Zero Coupon Secured Partly Convertible Debentures (ZCSPCD). The rights offer presents investors an opportunity to reduce the cost of acquisition of their original holdings. Suitability: The risks in investing in TV 18 are very high. The pay-offs depend on CNBC India — which is now making losses — breaking even. And they will be significant if the venture breaks even. In this backdrop, only investors with a penchant for high risk should consider investing in the offer. High risks: The shareholders are offered one ZCSPCD, at Rs 150, for every 13 shares held. For every 100 shares held, investors will have to invest around Rs 1,150. This works out to nearly 17 per cent of the market value of the 100 shares. Subscription to one ZCSPCD will lead to allotment of two shares at Rs 10 each a day prior to the completion of 12 months after allotment. Investors will receive Rs 24.38 per ZCSPCD at the end of the third, fourth and fifth years. And at the end of sixth year, they will receive Rs 89.38. The instrument can be split into its equity and debt components. If the latter is seen as giving a return of 15 per cent, then investors would be subscribing to the offer at Rs 38 per share. In other words, shareholders get the chance to subscribe to two shares for every 13 held at a discount of 45 per cent to the ruling market price. The chance, however, comes with a lock-in-period of 12 months. High risks also exist in the debt component. If CNBC India continues to make losses, then TV 18's cash flows are unlikely to be healthy. This is because TV 18 has to fund the losses of CNBC India, in which it has 49 per cent interest. This could seriously constrain TV 18's ability to honour repayment obligations. However, if CNBC India breaks even, then the outlook for TV 18 and its potential to repay the debt will improve considerably. Background: TV 18 operates the CNBC India channel. It holds a 100 per cent stake in Television Eighteen Mauritius (TEM) which, in turn, holds a 49 per cent stake in CNBC India. TV 18 sells content to TEM, which receives subscription revenues and sells 50 per cent of the advertising time to Indian advertisers. TEM passes the subscription and advertising revenues to CNBC India after adjusting for the cost of content and a profit margin. TEM also funds its share of the losses of CNBC India. At the end of July 2002, TV 18 had to recover Rs 67.65 crore from TEM. This includes loans given to TEM to finance the losses of CNBC India. And with an equity investment of Rs 17.18 crore, TV 18's total exposure to TEM works out to a little more than 80 per cent of its net worth. The exposure to TEM will only increase given that the objective of the rights offer is to increase the financial support to TEM. Cash recoveries from TEM can commence in a meaningful manner only when CNBC India starts breaking even.
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