Extending a loan to launch a takeover of a company or an asset is the oldest trick in the asset acquisition playbook. For millennia, peasants have lost their land to rapacious landlords who leveraged loans extended to them in times of distress. Ironically, this time-tested scheme of asset acquisition works just as well with a modern enterprise, as NDTV, the pioneering private Indian broadcaster, found out on August 23 when the Adani Group, which has a domineering presence in large swathes of Indian logistics, energy, minerals and much more, launched an ambush.
But this apparently “private” transaction has huge public interest ramifications. At stake is the question of plurality in the Indian mediascape that has been shrinking dangerously in the last few years.
The Adani group’s modus operandi was simple. It took control of Vishvapradhan Commercial Private Limited (VCPL), a little-known company that was earlier associated with the Mukesh Ambani group, another mega corporate. This company had extended loans amounting to Rs.403.85 crore to NDTV in two tranches in 2009 and 2010 through a holding company called RRPR, which belonged to Prannoy Roy and his wife, Radhika Roy, the founders of NDTV.
This holding company held 29.18 per cent of NDTV’s equity capital. Most significantly, although the loans did not require NDTV to pay any interest, they entitled VCPL to warrants that would enable its acquisition of 99.9 per cent of RRPR.
This effectively meant that upon conversion of the warrants, the Roys would have to surrender almost their entire stake in RRPR. This is what Adani’s media flagship company, AMG Media Networks Ltd., announced on August 23, giving the Roys just 48 hours to convert the warrants to shares. The acquiring entity also announced an open offer for a further 26 per cent, which it was obliged to do according to Securities and Exchange Board of India (SEBI) rules. The Roys initially tried to stall the acquisition by claiming that the exercise of converting the warrants to shares was done without their consent or consultation.
This was patently untenable since the conversion was not subject to any conditionalities—the interest-free loans extended by VCPL allowed it to convert the warrants to NDTV shares at any time during the tenure of the loan or after. Later, the Roys cited an earlier—and unrelated—SEBI ruling that barred them personally from trading in shares as a constraint in the conversion of the warrants. However, legal experts seem to concur that their position is untenable. They pointed out that the transaction predates the ban, that it is not a normal trade in shares and, most significantly, that such a restraint on RRPR would prevent it from discharging its fiduciary and contractual obligations.
The story of a loan
The story of how VCPL was born and how it changed hands between two of India’s biggest tycoons is itself an interesting one. Established in 2008 as a consultancy and management firm, it had no assets or income of its own. Its entire capital came as an unsecured loan from another little-known company called Shinano Retail, whose capital too came via an unsecured loan from Reliance Industrial Investments and Holdings ltd, a subsidiary of Reliance Industries Ltd, the flagship of the Mukesh Ambani empire.
The Roys, who then held about 55 per cent of NDTV, transferred a part of their stake to RRPR. In 2012, Shinano relinquished its stake in VCPL in favour of two entities associated with Mahendra Nahata, who is closely associated with the Mukesh Ambani group and is now director at Reliance Jio Infocomm. The Adani group’s latest salvo was fired after AMG Media Networks Ltd’s acquisition of VCPL from the Nahata-linked companies.
Interestingly, the stake was sold for Rs.113.74 crore, which would appear to be at a significant discount relative to the current market price of NDTV’s shares. Incidentally, Nahata’s little-known company, Infotel Broadband Services Private Limited (IBSPL), won the auction for spectrum for 4G services in 2010 amid controversy. It transferred its spectrum to Reliance, which is what enabled Jio to launch its all-India 4G service in 2016 (Spectrum grab, Frontline, September 30, 2016).
The Adani group upped the ante further on August 30. JM Financial Ltd., which is managing its open offer, announced in an advertisement that the offer for the acquisition of 16.7 million shares, representing 26 per cent of the company’s equity capital, would be launched on October 17.
Interestingly, the offer has been priced at Rs.294 a share; at the end of trading that day the NDTV share closed at Rs.471.50, which meant that the Adani offer was at a discount of 38 per cent. It would cost the Adani group Rs.492.81 crore to acquire the 26 per cent stake at that price, but Rs.680 crore if acquired at the open market price, a saving of about Rs.187 crore. The Roys currently hold about 32.26 per cent in NDTV.
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Since foreign institutional investors (FIIs) own a significant portion of the company’s stake, they are likely to play a key role in determining the reaction to the open offer scheduled for October 17. The prolonged three-way wrangle involving Reliance and Amazon over the assets of the distressed retailer, the Future Group, has some similarities to the Adani group’s loan-for-control move in the NDTV affair. However, the implications go far beyond the world of commerce for two important reasons, both of which arise from the fact that it involves control of a media company.
Questions of media ownership
First, since media ownership and its concentration have consequences for plurality in the mass media, they determine the nature of discourse in a democratic polity. Adani already owns a minority stake in Quintillion Business Media Private Limited (QBM), a digital business news platform. Ironically, Sanjay Pugalia, CEO of AMG Media Networks Ltd., emphasised how “public interest” would be served by the acquisition of NDTV.
Pugalia stated that Indian consumers and citizens would be “empowered” with “knowledge and information” provided by the Adani group’s channels. The precedents set by Mukesh Ambani are already an indicator of what may be in store. Reliance, which took control of Network 18 soon after Modi came to power in 2014, now controls a string of media channels spanning general news, business news, home shopping, and movies on multiple channels.
More significantly, as a result of its control of Jio, India’s biggest telecom operator, it now has control over the downstream distribution channels, which significantly enhances its reach. Indicative of this is its Jio News platform, through which it delivers a few hundred newspapers and platforms via its telecom service.
The entry of the Adani group into this space, with the tacit approval of the Ambani group, which actually sold VCPL to the Adani group, implies that the danger of an even greater concentration of media power is just a matter of time.
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The second major implication arises from the fact that the Adani group is not just any other business house: it has acquired significant clout since Prime Minister Narendra Modi assumed office in 2014. Indeed, in several key sectors such as air and sea ports, road assets, power, mining, warehousing, freight trains and even cement, it now controls significant market share.
Since many of these activities are prone to state regulation and discretionary approvals, there are fears that a business group that enjoys a domineering industrial presence may well shape the narrative in the media in a manner that benefits it, even as public interest becomes a casualty.
These worries about excessive concentration are compounded by the fact that much of the Adani group’s rapid acquisition of assets and businesses have been funded by a massive expansion of credit, particularly from state-owned banks, which have been saddled by bad loans extended to Indian corporates.
For instance, a recent report by CreditSights, a unit of the Fitch Group, highlights the fact that “excessive debt and over-leveraging by the Group (Adani) could have a cascading negative effect”. It warns of a “contagion risk” in the event of group entities falling into distress. This is not mere scare-mongering. In 2021-22, the group’s overall borrowings amounted to Rs.2.21 lakh crore, a rise of 40 per cent from the previous year.
The fear surrounding excessive media concentration stems from the fact that such grave matters will likely be pushed under the carpet by a media that is beholden to its powerful owners, jeopardising not just public interest but its own independence.
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From a public interest standpoint the takeover of NDTV can only leave the media landscape poorer. Gautam Adani is, according to the latest rankings in the Bloomberg Billionaires Index, the third richest person in the world, behind Jeff Bezos and Elon Musk.
With a fortune of more than $137 billion, Adani and his group’s ability to shape and dictate the narrative of what to report on and what not to is enormous. The implications for the democratic polity are, therefore, serious, one in which the public’s ability to access information from an alternative narrative are seriously compromised.
NDTV, which was first off the blocks after the satellite TV revolution, has preserved its unique brand of journalism, even swimming against the tide.
While other channels engage in daily night-fights on TV, with anchors frothing at the mouth and often unabashedly toeing the government line, NDTV has retained a space for reason, calmness, and old-fashioned decency. It has also retained a steadfast commitment to secular values.
While its English news channels have been the group’s mainstay for years, in recent years, its Hindi channel, led by Ravish Kumar, one of the country’s most respected TV journalists, has provided a space for a sane examination of issues and problems that afflict millions of ordinary Indians. All these could be in jeopardy if NDTV changes hands.
India’s legacy media has been under great strain in the last decade. NDTV’s current travails can in fact be traced to the period when, saddled by burdensome loans, it desperately entered into the loan agreement that now threatens its very existence. A precipitous decline in advertisement revenues led many media houses to lay off a significant portion of their workforce and enforce wage cuts in the midst of the pandemic. While the subscription-based model may be the way to go, many have not found the stomach to abandon the advertisement-based model they have relied upon. This is because the two are mutually incompatible.
Ironically, the ideal of media regulation, which could have provided a measure of protection to NDTV, has been abandoned by Indian legacy media houses, including NDTV itself.
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In the 1990s, when liberalisation was gathering steam, the media bosses were split on the issue, especially in the matter of foreign ownership in Indian media houses. On one side were those like N. Ram of The Hindu group of publications who argued that the media was unlike other “industries” because of its direct connect with its responsibilities in a democratic polity. Those on the other side, including most of the legacy media owners, implicitly argued that the media was just like any other industry.
Indeed, they closed their options by their enthusiastic welcome of the liberalisation process: any argument in favour of greater regulation would have been incompatible with the very slant their own media platforms were delivering to Indian audiences.
It seems unlikely that the Adani group’s takeover of NDTV can be prevented. And that will likely have grave consequences for practitioners in the media and for everyone who regards media as a pillar of democracy.