Mumbai: The Indian cricket team is winning on the field and the Board of Control for Cricket in India (BCCI) is raking in money, but the official broadcaster for cricket matches played at home is on a sticky wicket.

Nimbus Communications Ltd has filed for an initial public offering (IPO) to raise at least Rs344 crore to secure new sporting rights and launch two new channels. The company has been making losses on a consolidated basis for the past five years and has a total debt of Rs579.3 crore, according to the draft prospectus filed with the market regulator on 5 October.

Including the financials of its subsidiaries, the company made a loss of Rs142 crore for fiscal 2010. At the end of that year, Nimbus had a net worth of Rs446.8 crore. In the preceding two years, the company’s net worth was negative, but it was able to turn around mainly due to reducing unsecured loans by Rs404.9 crore.

The prospectus also said that the company had defaulted on part of a loan taken from Punjab National Bank (PNB) and failed to provide margin money for a bank guarantee earlier this year.

After acquiring, in October 2009, the rights to broadcast international cricket matches played in India till 2014 from BCCI, Nimbus had to furnish bank guarantees worth Rs2,000 crore. According to the terms of sanction letters from its lenders, Nimbus had to pay a margin capital of Rs30 crore each to PNB and Union Bank of India by 30 April 2010. This sum has not been paid till the date of filing the prospectus, the document said. Union Bank has given the company a waiver till 31 December, but PNB has not.

“Nimbus is not in default of any of its indebtedness including any to PNB, United Bank of India. We have not defaulted on the BG (bank guarantee) to PNB and United Bank of India," a spokesman for Nimbus said. “Negotiations are on with PNB to decide the quantum of the margin."

Neo Sports Broadcast Pvt. Ltd, a joint venture of the company (Nimbus has an indirect 48.94% stake in it), in turn owes some money to Nimbus. In a note, the auditors have pointed out “Rs3,025.43 million (net of subsequent realizations and net of the group’s share) is due as of 31 March 2010 from Neo."

According to the prospectus, they haven’t qualified this opinion which is to say that while the financial statements have been presented truly and fairly, the auditors think that the amount owed is significant.

“Management is of the opinion that the outstanding loan from Neo Sports Broadcast is good and fully recoverable as mentioned in the DRHP (draft red herring prospectus)," the Nimbus spokesman said.

Share pledge

The promoters of the company—Harish Thawani, Shobha Thawani and Paramount Corp. Ltd—had pledged bulk of their 28.98% holding to the lenders at time of securing the Rs2,000 crore bank guarantee. Since then, the bankers have released the pledge in the run-up to the share sale on the condition that the promoters re-pledge it within 30 days from the date of allotment in the issue.

Further, even if the shares are redeemed from the lenders, the promoter holding in the company is set to go below 26%—considered a strategic stake—after the issue is closed. Once fully subscribed, the promoter holding will slip to 23.6%.

“Mr Thawani has built a professional senior management team and continues to provide strategic direction," the Nimbus spokesman said, explaining his role.

According to the prospectus, the largest shareholders in the company now are 3i Sports Media (Mauritius) Ltd with 30.17% stake and Funderburk Enterprises Ltd with 28.62%. Mint couldn’t ascertain the ownership of these companies or their relationship with the promoters, if any.

In the prospectus, Nimbus said that it intends to spend some Rs115.8 crore for “obtaining bank guarantee and provide security deposit for sports rights."

Most of the other funds have been earmarked for expanding the business of Neo Sports Broadcast. Nimbus has an option of getting greater control of this company which owns and operates two sports channels—Neo Cricket and Neo Sports. Neo Sports Broadcast is owned by Zenith Sports Pvt. Ltd in which Nimbus has a 48.8% and Paramount 51% stake. Nimbus has secured the approval of the Foreign Investment Promotion Board (FIPB) for hiking its stake in Zenith Sports by buying Paramount’s stake. It needs FIPB approval because some compulsorily convertible preference shares have been issued to Funderburk, a foreign investor, the spokesman said.

Nimbus intends to spend Rs129.1 crore to launch two new channels and Rs13.2 crore on expanding Neo Cricket—its exclusive cricket channel—to North America.

Around Rs35 crore will be spent on upgrading its production capabilities while another Rs50 crore is earmarked for buying new broadcasting rights.

Cricket is the largest sports property with advertisement revenues of more than Rs1,000 crore a year according to media buyers. The media and entertainment sector is also booming and so far 75 companies in this sector have raised Rs3,716 crore from the market in the past five years.

As a stand-alone proposition, the going will be tough for Nimbus, said Nikhil Vora, managing director of IDFC SSKI Securities Ltd, a Mumbai-based brokerage.

“The big issue that investors would have is obviously the volatility of earnings. Cricket...requires huge capital upfront and the earnings are staggered over the next few years. Unlike other media companies, Nimbus does not see flagship properties that have a steady earnings stream," Vora said.

To finance its plans, Nimbus wants to raise capital by selling 14.04 million shares or 22.8% of equity shares outstanding now. The IPO also includes an additional 8.01 million shares which is an offer for sale by existing investors such as Americorp Ventures Ltd, CSI BD (Mauritius) and Funderburk Enterprises.

Anand Shah, senior research analyst at Angel Broking Ltd, is more optimistic about the IPO.

“Both cricket and movies are a religion in this country. They (Nimbus) are already into cricket and they’ll be getting into movies shortly. There should be enough investor interest, but subject to the right valuation."

The two channels which Nimbus wants to launch are Neo Cinema, a “24-hour Bollywood channel focusing on a mix of music, movies and Bollywood news" and Neo Zindagi, a “24-hour women-centric, lifestyle and factual programming channel," the prospectus said.

The company has so far not got the required regulatory approvals for these channels, it added.

The merchant bankers to the proposed public float are Edelweiss Capital Ltd, Macquarie Capital Advisors (India) Pvt. Ltd, Centrum Capital Ltd, and PNB Investment Services Ltd.