Litany of woes has just begun for Prannoy Roy

It is official. The Securities Exchange Board of India (SEBI) has ruled that Vishwapradhan Commercial Private Limited (VCPL) tried to quietly overcome Takeover Regulations in getting 26% ownership of New Delhi Television Ltd. (NDTV)[1]. SEBI further mandated that VCPL should make a public offer to acquire shares of NDTV within 45 days in accordance with (Substantial Acquisition of Shares & Takeover Regulations) SAST Regulations, 1997. PGurus had written about this in a four-part series titled SEBI Inaction[2]. Thank you SEBI, for acting.

The Big Picture

The ruling of SEBI has some ramifications, especially for the parent of VCPL, Reliance Industries Limited. When seen in conjunction with the fact that Reliance did not disclose its ownership of NDTV at the time of acquiring Network 18 in 2011, it could run afoul of the anti-trust/ monopolistic rules prescribed by the Competition Commission of India. At that time, it could be argued that NDTV and Network 18 combined commanded a massive following in many news segments, almost like a monopoly.

It must be kept in mind that on Jun 23, 2018, the SEBI Appellate Tribunal (SAT) quashed SEBI’s earlier decision that Reliance Industries Limited (RIL) did not violate its listing agreement by not disclosing the acquisition of Network 18 Media by IMT which the complainants alleged was a trust established in 2011[3]. Taken together, if it is proved that RIL was indeed the owner of both NDTV and Network 18, that could mean that a media company changed hands without informing the Ministry of Information and Broadcasting (MIB)[4]. Media ownership the world over is subjected to close scrutiny as it has significant national security implications. Of course, the bigger question that MIB will look at is how a large industrial house controlled two news media companies all these years?

Further, this order is just beginning of problems for the Roys, besides the MIB acting against them for this covert and fraudulent agreement, now SEBI will also act and levy penalties and prosecution under disclosure violations, Insider Trading Regulations and SEBI Fraudulent and Unfair Trade Practices Regulations. These orders are surely in the pipeline as SEBI has already issued show cause notices to them. In addition, Roys will be prosecuted under Prevention of Money Laundering Act (PMLA) as Takeover code violations are “predicated” offenses under the Money Laundering law.

RIL/VCPL must pay 10% interest per annum

SEBI’s ruling (Page 27) also mandates that VCPL pay interest at the rate of 10% per annum to the shareholders who were holding shares on the date of violation[5]. The event happened in 2009 so one can roughly say that the shareholders will get about 100% (10% time 10 years) by way of interest payments on the then applicable price of Rs. 214.65 per share. Big relief for them as NDTV’s stock is trading at around Rs.32.50 today, at about 15% of the Call option price.

References:

[1]SEBI orders open offer for NDTV – Jun 26, 2018, DNAIndia.com

[2]SEBI inaction Part 4 – Who was behind VCPL?Nov 3, 2017, PGurus.com

[3]SAT directs SEBI to look into RIL-Network18 deal’s control issue – Jun 23, 2018, Economic Times

[4]FIPB clearance scam in NDTV just like AirAsia? Is CBI looking at this also? Jun 3, 2018, PGurus.com

[5]Order against VCPL in the matter of NDTV – Jun 26, 2018, SEBI.Gov.in