Vikram-Betal: Let Me Tell You a Story...

Just like many of you, I too grew up reading Vikram Betal, an ancient Indian story collection, written over a 1,000 years ago about a wise king named Vikram and a ghost, Betal.

The 25 short stories chronicle the adventures of King Vikram who sets out to capture Betal, at the behest of a sorcerer.

The ghost lived in a tree in a graveyard and the only way he could be captured was by remaining completely silent.

However, every single time the king captured Betal, the ghost would tempt him with a story that ended with an intriguing question, the answering of which King Vikram could not resist.

As a result, Betal would re-inhabit the tree and the king would have to set out to capture him once again.

These stories made us think and reflect but also went one step further; they made us participate in the story.

At the end of each story, we could choose to answer the question posed to King Vikram and, in this process, it gave us an understanding of justice in society.

But what we did not know when we were young is that every answer is not black or white. It can be all shades of grey.

These old folk tales are even more relevant in modern society, where everything hinges on the grey and there are no simple black and white answers...

Because, the past, present, and future are not consecutive. They are connected in a never-ending circle. Everything around us is connected.

Life is all the grey areas. Very rarely are things just black and white, even when we wish they were and think they should be.

So...would you like to hear a story?

The Money Lender and the Farmer

Many years ago, a farmer in desperate need of money approached a money lender for a personal loan.

The moneylender agreed to lend him the money, provided the farmer would mortgage his personal gold and jewellery to him as collateral.

Left with no other option, the farmer agreed and handed over his family gold to the money lender as security against the loan received.

Many years went by and it seemed like both were content with the continuing arrangement.

However, one day, the farmer woke up to shocking news- the moneylender had transferred the loan to a third party and this new lender in turn had claimed the farmer's gold as his own!

Now, just like Betal asked Vikram a question at the end of each story, let me ask you one for this story-

Who was at fault here for the farmer's loss?

The money lender who transferred the loan to a third party, the farmer who lost his family gold or the new lender who claimed the farmer's gold for his own?

Who is the victim and who is the villain of this story?

Black or White? It's the Way You Look at it...

By now a lot of people may have drawn a parallel between the moneylender and farmer story to the recent acquisition of a significant stake in NDTV by the Adani group.

On the surface of it, most people feel that this is nothing more than shrewd manoeuvring to acquire control in one of India's more popular news networks.

But maybe, just maybe there is much more to this story. After all, life is about the grey areas.

Isn't it true that in the end we will all get just what we deserve?

Now, before we proceed, I know elements I touch upon in this piece are sub-judice. My goal here is to stick to publicly available information and then leave it to you, dear reader, to form your own opinion on this matter.

To truly understand this story, we need to go back to the beginning- because the end is the beginning and the beginning is the end.

In 2008, Prannoy Roy and his wife Radhika, founders of NDTV initiated an open offer for purchase of NDTV shares.

In order to fund this open offer, RRPR Holding Private Limited (RRPR), the Roy's (promoters') holding company availed a loan of Rs 450 cr from Indiabulls Financial Services Ltd. To repay this, the Promoters availed a loan Rs 375 cr from ICICI Bank.

As collateral for both the loans, the promoters pledged their personal shares held in NDTV.

Finally, the Promoters repaid the loan to ICICI Bank by taking another loan in July, 2009 from Vishvapradhan Commercial Private Limited (VCPL), a company said to be associated with Mukesh Ambani.

While the Ambani loan came free of interest, there was one crucial clause to the arrangement between RRPR and VCPL and its affiliates. If the Roys were unable to repay the loan, VCPL had the right to purchase a total of 29.18% stake in equity shares of NDTV from RRPR respectively at a fixed price of Rs 214.65 per share.

Interestingly, the loan was repayable on the 10th anniversary of the drawdown date, i.e., July 2019 but even after due date, surprisingly Ambani never exercised the right to own the shares.

Instead, out of the blue one day, the Roys were shellshocked to find that the loan had been transferred to Gautam Adani and he in turn had immediately exercised the right to take ownership of 29.18% stake in NDTV.

The acquisition, if it goes through, will trigger an open offer for the Adani group to buy another 26% of the TV network, essentially meaning that they would become the majority holders in NDTV.

There Are No Villains, Only Victims with Power

Does a story always have to have a protagonist and an antagonist?

The conflict between protagonists and antagonists has represented the heart of many of history's most compelling tales.

But in the corporate world, there is no clear-cut one-sided good vs. evil battle, but rather complex characters with their own strengths and flaws.

The Roys - Miscalculated Bets?

The cycle of loans and miscalculated bets (this we know only with the benefit of hindsight) have haunted the network and its promoters since 2008.

In 2007, Radhika and Prannoy Roy decided to buy back a 7.73% stake held by another shareholding entity, GA Global Investments.

As per Indian stock market regulations, this triggered an "open offer," which allows other shareholders to sell stake up to a prescribed limit to the promoters at the same price.

And this is where the Roys made a move that was possibly responsible for all that has transpired. As they were short of money, they decided to borrow funds through their promoter group company RRPR to buy back their stock in the open offer.

The loan marked the beginning of a chain of borrowings that finally came back to haunt the Roys resulting in Adani launching a bid to takeover the company recently.

Was it a wise decision for a reputed promoter to buy back shares by borrowing funds from the market at exorbitant rates? As per reports, the Roys were paying an obscenely high interest rate of 19% to ICICI bank for the loan.

We know with the benefit of hindsight that this loan could not be repaid. In fact, it was transferred from India Bulls to ICICI bank to finally VCPL, an allegedly Ambani owned company. It was never repaid by the Roys themselves.

The terms of the loan from Ambani were quite extraordinary.

First, the Roys were required to divest a major chunk of their personal stock in NDTV and transfer it to RRPR before being handed over to VCPL.

Radhika and Prannoy Roy curiously sold their shares to RRPR at Rs 4 per share when the market price was close to Rs 140.

According to the VCPL- RRPR agreement, as per reports, it gave VCPL the right to convert the loan into 99.99% of RRPR's equity effectively meaning complete ownership not just during the period of the loan but even after without requiring any further act on the part of the Lender.

Puzzlingly, this meant that regardless of repayment, VCPL could officially take over RRPR at any time it wanted. For all practical purposes, this was a transfer of control to the extent of 29.18% of NDTV to VCPL.

NDTV could not sell or raise further equity, file for bankruptcy, or do anything that would affect RRPR's shareholding, without VCPL's consent.

A simple reading would suggest that these conditions ensured the Roys no longer had any control over RRPR, which owned nearly one-third of NDTV's stock.

Effectively, if one goes purely by what has been reported already, it seems the Roys had already lost control of their company to Ambani back in 2009.

Mukesh Ambani - Heads I Win, Tails You Lose

Can you imagine Mukesh Ambani giving anyone an interest free business loan?

It's possible. But then, could it really happen?

Strangely, as per the agreement entered between Ambani's company, VCPL and the Roys promoter company, RRPR, a loan of Rs 403.85 cr was provided by Ambani at no interest.

Surely there must be some logical explanation.

Now, no one but Ambani can answer this.

But let's speculate for a moment on what could have been the reasons for this.

First, this could have been part of Ambani's broader strategy to consolidate their position in the media industry.

As per the terms of the agreement, even though there was no interest payment from the Roys, Ambani was effectively in control of NDTV.

Ambani may have realised that the Roys had dug themselves deep into a hole and would never be able to repay the loan.

Hence, the idea was to probably take control of NDTV down the road as VCPL had the right to officially take over RRPR at any time it wanted.

So why didn't Ambani exercise his right and take over NDTV in all these years?

To begin with, it is possible that Ambani may have changed his mind due to NDTV's poor financial performance (it however needs to be noted the company's recent results have shown promise). After all, NDTV has made profits in only 6 of the last 19 years with accumulated losses close to Rs 350 cr since 2004.

On the other hand, the Network 18 group has been consistently profitable. After providing this loan to RRPR, Ambani turned his attention to the much larger Network 18 group rather than NDTV. In 2014, Reliance took over Network18.

And then there is also the matter of the SEBI order against VCPL, the Ambani owned company in 2018.

In its order dated 26th June 2018, SEBI stated that the loan provided by VCPL to RRPR had resulted in VCPL indirectly assuming a controlling stake in NDTV which was done in violation of their takeover norms.

SEBI noted that the takeover exercise "has been conveniently couched as a loan agreement." It further directed VCPL to pay 10% interest on top of a takeover fee to the former shareholders of the company.

Although the Securities and Appellate Tribunal (SAT) dismissed SEBI's order in favour of Ambani in July this year, it has been reported that SEBI is expected to challenge the SAT order in the Supreme court.

Hence, one can assume that it may not be a coincidence that just a month after the SAT order, Ambani sold off the stake to Adani, hoping that the matter is not pursued once he has cut all ties from NDTV.

Gautam Adani- Give Him Money and He Could Buy the Moon!

The Indian news media industry has not exactly been a hot sector and any new investment for commercial reasons may not look very feasible.

The total size of the sector, including newspaper, digital and news channels, is relatively much smaller as compared to the other industries in which the Adani group has made mega investments in recent times.

Hence, it makes one wonder, why is Gautam Adani interested in a sector that is struggling to grow its revenue?

Again, only Gautam Adani can answer this. But by now you know we will speculate anyway.

The Adani group's venture into media may not make a lot of commercial sense on that basis, but it starts to make sense when one considers the non-commercial benefits.

There's a lot of value to be had when one can control the narrative. Of course, one cannot be sure whether the venerable editorial team of the NDTV group can be swayed.

Another reason could be that this is just another step in consolidating Adani's media ventures.

In April this year, Adani announced incorporation of its subsidiary AMG Media Networks.

The Adani group's foray into the sector is likely to be big as it is eyeing to partner with international media outlets to launch its own products and acquire significant stakes in local publication houses and news channels.

Hence, for Adani it seems almost logical to buy out smaller players such as NDTV to build a formidable portfolio in his media group.

Earlier in March, Adani had acquired a 49% stake in Raghav Bahl-curated digital business news platform Quintillion Business Media Pvt Ltd for an undisclosed sum.

But coming back to the NDTV-Ambani-Adani sage, one key question remains unanswered.

Why would Mukesh Ambani agree to sell his stake in NDTV to Adani, his billionaire rival?

There are more such questions that will have to remain unanswered...

In this story, for me, it is difficult to tell if there is really any victim or villain...

What about you?

The Sources I referred to for this piece:

https://economictimes.indiatimes.com/industry/media/entertainment/media/ndtv-promoters-revise-open-offer-dates/articleshow/3082687.cms?from=mdr

https://www.exchange4media.com/media-tv-news/ndtv-ltds-roys-buy-back-7.73-pc-stake-from-ga-global-investments-for-rs-192-cr-29224.html

https://www.business-standard.com/article/current-affairs/cbi-raids-ndtv-s-prannoy-roy-for-2008-deals-with-icici-bank-117060500900_1.html

https://m.economictimes.com/news/politics-and-nation/itat-upholds-case-against-ndtvs-prannoy-roy-and-radhika-roy/articleshow/69867289.cms

https://www.sebi.gov.in/enforcement/orders/jun-2018/order-against-vishvapradhan-commercial-private-ltd-vcpl-in-the-matter-of-ndtv_39359.html

https://www.sebi.gov.in/enforcement/orders/jun-2018/order-against-vishvapradhan-commercial-private-ltd-vcpl-in-the-matter-of-ndtv_39359.html

https://economictimes.indiatimes.com/industry/media/entertainment/media/ndtvs-loan-agreement-2009-lender-borrower-to-scout-for-stable-reliable-buyer-for-holding-firm/articleshow/93756093.cms?from=mdr

https://www.moneycontrol.com/financials/newdelhitelevision/profit-lossVI/NDT01

https://www.thehindubusinessline.com/markets/ndtv-case-sebi-likely-to-challengesat-order-in-sc/article65682272.ece

https://www.businesstoday.in/latest/corporate/story/adani-group-picks-49-percent-stake-in-quintillion-business-media-333700-2022-05-16

https://www.livemint.com/news/india/adani-group-vs-ndtv-the-tale-of-hostile-takeovers-in-indian-corporate-industry-11661307221684.html

https://www.foundingfuel.com/column/strategic-intent/gautam-adanis-midnight-raid-at-ndtv/

https://www.ndtv.com/business/ndtv-says-adani-needs-indian-regulators-nod-after-hostile-bid-3285150

https://www.outlookindia.com/website/story/raids-on-ndtvs-prannoy-roy-carried-after-due-diligence-not-under-political-press/299231

https://www.forbes.com/sites/meghabahree/2014/05/30/reliance-takes-over-network18-is-this-the-death-of-media-independence/?sh=7d9400fe65c1

https://www.business-standard.com/article/news-cm/adani-enterprises-acquires-100-stake-in-vcpl-122082301011_1.html

https://www.financialexpress.com/industry/adani-group-sets-up-wholly-owned-media-arm-amg-media-networks/2506039/

Disclaimer: This article is information purposes only. Views/opinions, if any expressed are of the author. The facts and views expressed here do not reflect the views of Equitymaster.