Reliance Group may sell stake in media ventures4 min read . Updated: 07 Feb 2014, 12:20 AM IST
Group plans to spin off profitable businesses and then either sell a stake in them or go in for a fresh listing
Mumbai: Anil Ambani-led Reliance Group’s move to delist two of its companies, Reliance Broadcast Network Ltd (RBNL) and Reliance MediaWorks Ltd (RMW), from the bourses is part of a larger restructuring strategy which may involve partially or fully selling some parts of its media and entertainment business, two people familiar with the development said. Neither wanted to be identified.
The idea is to spin off the profitable businesses into separate units and then either sell a stake in them or go in for a fresh listing of these businesses, one of the persons said.
Reliance Broadcast operates radio stations under the brand name of 92.7 BIG FM and television channels, while Reliance MediaWorks, which operates a chain of multiplexes under the brand name BIG Cinemas, is into television and film production and also offers film production services.
“Right now, both at RBNL and RMW, different businesses are bundled together under a single entity, and potential investors who may be interested in acquiring a stake in only one of the businesses aren’t able to do so," one of the two persons said. “With the delisting and subsequent breaking up of the business into separate companies, investors can choose the business that attracts them."
Delisting the company and selling stakes in separate entities will also help Reliance Capital Ltd (R-Cap), the financial services arm of the Reliance Group and a banking licence aspirant, offload its investments in these firms at a better value. R-Cap is a promoter shareholder in both RBNL and RMW, and the company has been focusing on liquidating its non-core investments and businesses that are not germane to its financial services operations. R-Cap holds 19.80% of RBNL’s shares and 18.76% in RMW.
An email sent to Reliance Group on Wednesday remained unanswered.
Reliance Broadcast’s radio business is profitable, the television business is incurring significant losses. In 2012-13, the radio business reported a profit before tax of ₹ 8.18 crore, while the television business incurred a loss of ₹ 66.68 crore. Overall, the company posted a net loss of ₹ 91.65 crore.
According to its last published earnings report in November, Reliance MediaWorks posted a net loss of ₹ 554.90 crore for the twelve months ended 30 September.
The company followed an accounting year from October 2012 to September 2013 for that year). While its film and television production and distribution segment is profitable, returning a profit before tax of ₹ 99.90 crore in fiscal 2013, the combined loss from the film production services and multiplexes was around ₹ 370.67 crore.
On 22 January, Reliance Broadcast announced that its promoter shareholders intended to acquire the outstanding shares of the company and subsequently delist the scrip. The floor price for the buyback has been fixed at ₹ 46.47 per share.
Reliance MediaWorks notified the bourses on 20 January that it would do the same, although the details of its proposed delisting are yet to be made public.
Shriram Subramanian, founder and managing director of proxy advisory firm InGovern Research Services Pvt. Ltd says he does not expect the delisting of these two companies to have any significant implication for minority shareholders.
He added that the floor price decided for the buyback of Reliance Broadcast’s shares is much lower than the current market price and if the company wants a 100% tender of shares in the buyback, it will have to raise the exit price considerably.
The pressure on the companies’ profitability reflects on their stock prices, which are trading far below their historic highs. Reliance MediaWorks’ shares reached a historic high of ₹ 1,744 each on 7 January 2008 and Reliance Broadcast’s ₹ 145 per share on 4 December 2009.
Since then the stock prices have been falling. On Thursday, Reliance Broadcast’s shares fell 5.22% on BSE to close at ₹ 58.05 per share. The bourse’s benchmark index Sensex rose 0.25% to end at 20,310.74 points. Reliance MediaWorks’ shares rose 0.72% to close at ₹ 48.75 per share.
“On the face of it, it looks like they are restructuring the business and doing so with listed entities may not be possible," said Deven Choksey, managing director at KRChoksey Shares and Securities Pvt. Ltd. “They may want to look out for ways to capitalize the entity, which may be best possible with private equity investors. Delisting for restructuring may help cut down many governance issues and restrictions as well."
The need for restructuring is apparent from the fact that Reliance MediaWorks’ net worth has been completely eroded. In the notes to accounts in the company’s fiscal 2013 financial statement, Reliance MediaWorks said that though the firm’s net worth has been eroded, the business remains viable. “Having regard to revenue visibility of new businesses in film and media services, improved operational performance of exhibition business, financial support from its promoters, further restructuring exercise being implemented etc, the financial statements have been prepared on the basis that the company is a going concern and that no adjustments are required to the carrying value of assets and liabilities," the company stated.
Reliance MediaWorks raised around ₹ 588 crore from existing shareholders through a rights issue in September and was to use this money to repay debt and fund expansion plans. However, additional funding may be required, which the company may look to generate by the restructuring.
As on 30 September, the company had long-term and short-term borrowings totalling ₹ 1,526.04 crore. The company also repaid debt to the tune of ₹ 592 crore to R-Cap and other lenders. Reliance Broadcast had outstanding long-term and short-term borrowings of around ₹ 396 crore in the same period.
Arun Kejriwal, director of Kejriwal Research and Investment Services Pvt. Ltd says that Reliance will most likely to utilize the proceeds from any stake sale of these potentially delisted businesses to further pare debt.