Adani Group’s purported indirect acquisition of 29% of stake in New Delhi Television Limited (NDTV) is in news these days. Apparently, this was done without a hint of what was in store for promoters, management, journalists of NDTV. One fine day, they got to know that 1/4th of their Company was in the hands of the richest Asian (3rd richest one globally).
How did all of this happen and nobody got to know about it? For this, we need to look into the background of certain transactions that occurred a decade and a half back.
Background
It sounds like a story of debt trap.
It all started in 2007 when the promoters of NDTV, Radhika Roy and Prannoy Roy made an offer to buy back a certain percentage of shares from the existing investors in NDTV. However, they didn’t have sufficient funds for the same – they managed funds through a loan of Rs. 540 Crores from Indiabulls Finance Ltd.
In 2008, there was a global financial crisis due to which there was a significant decline in the stock prices of NDTV. The Roys were unable to repay the loan which they had taken from Indiabulls Finance Ltd. To repay this amount, they further had to take a loan of Rs. 375 crores from ICICI Bank which carried interest of 19% p.a. This loan proved to be very costly for the Company and they were becoming desperate for help now.
To ‘rescue them’ as they believed at that point in time came an unknown player in the market by the name of Vishwapradhan Commercial Private Ltd (VPCL). VPCL provided them with a loan of Rs. 350 crores free from any interest for a total period of 10 years.
However, is there is free lunch ever?
Owing to the inability on the part of promoters to repay this loan as well, they offered VPCL a convertible warrant. In other words, this loan was settled through a convertible warrant with the help of which VPCL could acquire the shares of the company thereby claiming its ownership. They became capable of claiming 29% stake through these warrants in the company and obtained it from a new company incorporated by the promoters themselves known as RRPR Ltd.
Everything was hunky dory with the Company till the Adani group bought VPCL in August 2022 which led to a chain of events. VPCL had claimed the warrants before being acquired by the Adani group and the same was then transferred to the Adani Group.
As a result, all the shares under the ownership of RRPR went into their hands and as per the SEBI requirements, they have further announced an open offer for about 26% from the other shareholders of NDTV. This could increase their ownership in NDTV up to 55% thereby making them the biggest stakeholder of the Company. The ownership, management, and journalists will all for all practical purposes come into their hands if they can obtain these many shares.
What lies ahead
All these deals in the earlier years have now caused trouble for the Roys. They have become completely helpless and are contending that the open offering for the existing shareholders is unlawful and even the acquisition of shares held by RRPR Ltd by the Adani Group is unauthorized.
The sheer pace at which Adani group has acquired VPCL and asserted its control over the warrants issued by RRPR has left almost no option for Roys to avert this acquisition.
It could have certain negative repercussions that neither the existing management nor the journalists at NDTV would have expected or anticipated. There was no fault on their part in this situation and neither were they informed, but they would have to suffer the maximum brunt of this acquisition. The management could be outrightly removed and replaced by a new one. The Adani Group could choose whether to keep the existing Journalists, at their whims and fancies.
These seem to be most likely outcomes as per the current situation. Due to the urgency on part of promoters, the entire Company is going into the hands of some outsider and would possibly no longer remain the same. This case will time and again reflect upon the importance of proper planning and corporate Governance which would have prevented the Company to arrive at such a position where it can any time go into the hands of Adani Group which had acquired VPCL Ltd hardly a week back.
Importance of Corporate Governance / Due Diligence
This incident should make us all delve deeper into the need for stringent Corporate Governance. Mere benefit at present shouldn’t be the criteria for giving the shares of the Company to the lender. The promoters should have looked into their financial capacity to repay the loan and then accordingly taken it. They should have kept in mind the adverse consequences that might take place in the near future if they are incapable of repaying the loan.
Due diligence must be carried out to check the genuineness of the lender and all terms and conditions should be critically examined and negotiated. In this case, VPCL Ltd was not a very well-known company and just because they were willing to give the loan free from any interest, the promoters didn’t consider it even once and took the loan.
Any company while taking a loan must carry out due diligence on the background of the lender to avoid any problems in the future. At the same time, they should consider their own financial capacity to repay the loans and the long-term consequences of taking a huge sum of money. We have seen the consequences faced by borrowers availing small loans from newly cropped up Chinese apps, haven’t we? So how could NDTV promoters be callous in availing such huge loans with such drastic consequences?
As is stated under the accounting principle of Prudence, we should never anticipate any profits but should provide for all losses or adverse consequences which might arise in the future. The promoters had absolutely no clue regarding how they would repay the loans but were recklessly taking loans from different Companies. This eventually got them into a debt trap. Once you get into a debt trap, you keep replacing one loan with another and the vicious cycle never ends.
As a result, to repay one loan, they had to take another loan. The situation worsened so much that due to a lack of funds, they had to give warrants for claiming the shares of RRPR Ltd.
Conclusion
From this case, it is clear that in pursuit of funds, promoters can make the future planning of their own company go haywire. It could end up in such a situation where the employees, management, and even them are left helpless. There is a need to realize that carrying out due diligence is important and that nothing should be left to be considered in the future. Proper planning and forecasting should be carried out before taking any major decision. If all these measures are taken into consideration, such instances would be minimized and Companies will prosper, free from any external pressures.
Parth Verma is 2nd year student of BBA LLB from Christ, Bengaluru
