See a debt free company after rights issue: Raghav Bahl

Television Eighteen (TV18) board has approved rights issue of Rs 510 crore. The company will use the proceeds to repay the net debt on TV18 books.

A straight equity instrument is proposed to be offered in this rights issue. Other terms, including record date and entitlement ratio and price per equity share will be finalised closer to the date of the opening of the issue.

Currently, TV18 company has Rs 600 crore of net debt and Rs 1,100 crore as gross debt on its balance sheet. MD of Network 18, Raghav Bahl said, "We want to be a zero-debt company after the rights issue, post which we will look at growth options. Our focus is on deleveraging the TV18 balance sheet."

The rights issue will be done between 4-5 months from now and Network 18 will be the principle underwriter.

Q: You spoke about deleveraging the TV18 balance sheet last time when you were on air but the size of the rights issue might have come as a little bit of a surprise to the market, more than Rs 500 crore which would require a fairly significant dilution, why such a big issue?

A: Yes we could have done with a smaller issue. I will just take you through the math. We have roughly Rs 1,100 crore of gross debt not on the rest of the group just on TV18's balance sheet and net debt is roughly about Rs 650 or Rs 600 crore and we are planning to raise this Rs 500 crore. Then we are getting Rs 150 crore from IBN18 against the Viacom18 option. So, effectively we will become a zero debt company. Someone can argue and I think it is a legitimate argument that why are you swinging the other way now, why are you going zero debt? Lesson we learnt early on in life that if you have to take steps to solve a problem then don't take baby steps, solve the problems so that you can then get on with getting the focus back on growth. My personal focus and a large number of our senior managers' focus over the last few months has been on deleveraging the TV18 balance sheet, something we have said. I think we need to get on from there. Once we are a zero debt company again, we have got the world opening up before us because the quality of assets on the TV18 balance sheet is unimaginably good and therefore we need to get back to growing.

Q: Just to reiterate, the entire Rs 510 crore goes only towards paring off the net debt the company has?

A: No, I think the prospectus filing that is happening gives a full schedule of end use of funds and I think it will be there in the public domain in the next couple of days once we file with Securities and Exchange Board of India (SEBI). So, the exact numbers are there. But I have given you the broad picture because the company still holds onto a significant amount of cash; the cash on TV18's consolidated balance sheet is to the tune of about Rs 450-500 crore. So I have given you the full picture in one swift leap to become a net zero debt operation. The exact use of the funds is there in the prospectus.

Q: Market conditions have improved and so have stock prices but sentiment is still a little fragile. To draw in or to succeed in such a large rights issue, would you lure investors with very attractive pricing, (say) a significant discount to market price?

PAGE_BREAK

A: The rights issue, we announced today, will be able to do it in no less than four-five months from now. Not even God can predict what the stock price will be four-five months from now. So we cannot give out a price at this stage. Globally, companies are allowed to do rights issues in 48 hours so you can talk about a price, but in India we cannot.

Having said that you will have to look at our track record. Investors who have been with us over the last ten years would remember that the group has done two-three rights issues and each and every rights issue has resulted in significant value in the hands of shareholders. So judge us by our track record.

Q: We understand that the issue will be underwritten by promoters. Which promoters in specific will be participating for the under subscribed portion?

A: It is Network18, the principal promoting company of TV18 which has recently raised Rs 250 crore in equity and equity related instruments and is in the process of raising another Rs 250-300 crore through either a strategic stake sale or through a financial stake sale. So that company will have Rs 500-600 crore of cash with it and that is happy to underwrite the entire issue for TV18.

Q: The talk this morning in the market is about how a lot of promoters are now choosing to pare their personal stake in companies in order to retire debt. I want your thoughts on that as a process right now for cleaning up balance sheets?

A: Enormously healthy step, it tells the world that Indian promoters have come of age and are not dodging the problem anymore and if they have for whatever reason, whether it is their own lack of judgment or the fact that circumstances overtook them if some of their bets have not gone according to their expectation, then they are the ones who have to come in and fill the hole. I think it is a very healthy step that Indian promoters are doing, standing behind their decisions, taking the rap for decisions which may not have worked out according to what they thought it would be and ensuring that the balance sheets are strong and every shareholders' rights are protected.

Q: With this transaction whenever it gets completed, the level of debt will come down significantly to negligible levels on your balance sheet but by when do you think growth will pick up for businesses in TV18 and other group companies where while the balance sheet is improving, the actual earnings growth will more than offset for the kind of dilution you are now seeing with each of these equity raising exercises?

A: I think we now need to stop looking upon us as fund raisers but as managers which is what our principal job is. We are beginning to see growth. Even if you look at the January-February-March quarter, if you normalize it, if you take out the revenue that normally accrues to us from the budget since the budget did not happen, we had a growth. So we did have a growth even on the business news revenues which actually suffered the quarter before that. Internet revenue certainly continued to grow, Newswire18 revenues are growing very well. We also have a 20per cent stake in IBN18 and those are rapidly growing businesses particularly the entertainment businesses - I wonder whether the shareholders are aware that 10per cent of Colors and Viacom18 value sits on TV18's balance sheet which is a significant value and there we are seeing double, nearly triple digit growth rates. So growth is coming back and with a stable government and a good budget around the corner in July, we expect that the business news channels will jump back into the fast growth lane that they were in just two quarters ago.