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Shares of NDTV had hit a nine-month high on prospects of selling them at ₹214 in an open offer


Shares of NDTV are on a roller-coaster ride. Prannoy and Radhika Roy-led media company’s stock rallied a whopping 74% for four sessions last week after the market regulator Securities and Exchange Board of India (SEBI) ordered Vishvapradhan Commercial (VCPL) to make an open offer. The stock had also received a boost after the Bombay High Court asked the Reserve Bank of India (RBI) to consider the compounding applications filed by NDTV in an alleged Foreign Exchange Management Act (FEMA) violation case. Compounding refers to the process of voluntarily admitting the contravention, pleading guilty and seeking redressal. The Sebi order coupled with Bombay HC directives sent the stock soaring on Monday hitting upper circuit at Rs.56.55 on the BSE. However, on Wednesday, the stock’s unprecedented rise was halted. NDTV’s shares were locked in a lower circuit after VCPL reportedly decided to appeal against the Sebi order.

Loan agreement

Sebi’s order refers to a loan acquired by the NDTV founders in 2009 to repay the loans they had taken earlier. VCPL had disbursed Rs.3.50 billion loan to the Roys via convertible instruments, which on conversion would amount to 99.99% of the fully diluted equity share capital of RRPR Holdings — the Roys’ investment company. Hence, the Sebi order said, VCPL indirectly controlled NDTV via the loan agreement and accompanying call option agreements entered into on July 21, 2009. 

While asking VCPL to make an open offer within 45 days, Sebi has directed the company to pay an interest of 10% per annum to the shareholders who were holding the shares at the time of the violation. The market regulator pulled up VCPL observing that it had violated the takeover norms. It observed that the takeover exercise was conveniently shown as a loan agreement and shareholders must get an exit opportunity going by the provisions of the takeover regulations.

According to an investigation by The Caravan magazine, VCPL is currently owned by Mahendra Nahata, a board member of Reliance Jio. Eminent which is owned by Nahata, has also secured the ownership of VCPL’s Rs.4 billion loan to RRPR for Rs.500 million.

Who gains?

The question is, if the open offer proceeds, who will benefit? According to a Sebi order in 2014, the original shareholders will be first allowed to tender the shares. Sebi defines an original shareholder as someone who was a shareholder of the company as on the triggering date and continues to be a shareholder of the target company till the date of tendering their shares in the offer. “Original shareholders will be given first preference. New shareholders who bought the share after the trigger will come second to the original shareholders,” says Abhimanyu Bhattacharya, partner, Khaitan & Co.

The stock had rallied on the expectations that post the Sebi order, VCPL would make an open offer in which the original as well as new investors would be able to tender their shares at a higher price. “Sebi allows a new existing shareholder to tender in the open offer. If a person was not a shareholder at the time of the trigger, he or she could still tender the shares now,” says Paras Parekh, senior associate, JSA Associates & Solicitors.

"Original shareholders will be able to tender their shares at Rs.214 and he/she will also be entitled to 10% interest rate ordered by Sebi which amounts to Rs.193 per share. So, today the open offer price works out to Rs.407 per share," says Bhattacharya.

New shareholders who bought shares on the day of the order and after it, would also be eligible to participate in the open offer but won’t be entitled to the interest of 10%. “The Supreme Court had said if a person was not a shareholder at the time of the trigger, the person would not be entitled to interest,” explains Parekh.

Who loses?

While new and current investors are set to gain, those who had sold their shares won’t be able to the avail the benefit of an open offer. “If the person doesn’t have shares today, he or she may not be able to get the benefit of the open offer,” says Parekh. Even if a former shareholder buys shares after the date of trigger, he/ she won’t be able to take part in the open offer.

The stock price of NDTV was Rs.32.50 when the Sebi order came on June 26. On Friday, the stock had closed at Rs.42. While the prospects of tendering shares at Rs.214.65 has led to spike in NDTV stock price, all eyes will be VCPL which is expected to officially move SAT against the Sebi order.