The shares of the Delhi based Media Company NDTV tanked 8% lower to ₹32.10 from their previous closing price of ₹34.80 on BSE on June 17, 2019. Stock prices observed a gap down amidst reports of Securities Exchange Board of India’s (SEBI) action against the founders of the company. Promoters Mr Prannoy Roy & Mrs Radhika Roy were banned by the market regulator from evaluating the capital market for a duration of two years.
NDTV is an acronym for New Delhi Television Limited which is a broadcasting & cable TV operator. The company operates several television channels such as:
1) NDTV 24×7
2) NDTV India
3) NDTV Prime
4) NDTV Good Times
5) NDTV HOP
SEBI has barred both the promoters from assessing capital markets for the duration of 2 years. SEBI has also prohibited the founders of NDTV from holding any key managerial position after the duo got convicted in loan case of Vishvapradhan Commercial Private Limited (VCPL).
On June 14, 2019, the market regulator issued a notice to both the founders of NDTV and their holding firm RRPR Holding Pvt Ltd stating their violations of the provisions of SEBI. The regulator mentioned that they omitted to reveal essential information pertaining to VCPL case to the Board and the shareholders of the company.
The loan fraud
The market regulator had set up an inquiry about the alleged violation of the takeover norms by VCPL in a form of 10-year loan ending July 2019. VCPL will take over 52% of NDTV, according to the agreement of the loan.
SEBI previously ordered VCPL to proceed by making an open offer for up to 26% stake in the media broadcasting company from public shareholders.
The promoters of NDTV are alleged to have secured a loan from ICICI Bank amounting to ₹ 375 crores. Further, the loan was paid back by securing a loan of ₹ 350 crores from VCPL via an agreement dating July 21, 2009.
The agreement involved RRPR issuing a warrant to VCPL which were convertible into equity shares accumulating to 99.99% of RRPR at the time of conversion at any time during the loan tenure or after it. This term alone would turn into a 26% holding in NDTV.
In addition, It also authorised to buy the equity shares of founders at par value from RRPR Holdings Pvt Ltd.
The terms of the agreement also equipped the strategy of VCPL to stretch its reach up to 52% in two different ways.
1) Indirect acquisition of convertible warrants of the holding company
2) Purchase of a freely exercisable call option to buy 26% shares of NDTV
Challenging the order
The agreements of the loan were utilized to fraudulently transfer shares of the media broadcaster up to 30% to VCPL. The transfer of shares was undertaken without any approval from the board of NDTV or the company’s shareholders. The acts of the promoters of NDTV and their holdings company violated Regulation 4(1) of PFUTP Regulations. PFUTP stands for Prohibition of Fraudulent and Unfair Trade Practices which relate to the stock market.
However, both the promoters, Mr Prannoy Roy & Mrs Radhika Roy have now informed their company about their non-disclosure of terms of their loan agreement with VCPL and ICICI Bank Limited. The founders have also informed the company that order which has been passed is based on inaccurate information. They further added that the order will not be able to withstand scrutiny in appeal. Further, the founders are in the process of challenging the order in appeal prior to the Securities Appellate Tribunal.
The scrip of the media company on 17th June ’19, witnessed a gap down on reports of the loan fraud, falling 8% to ₹32.10 per share on BSE. Further, the stock recovered from its lows and made a high of ₹36.90 up 6% from its previous closing price of ₹34.80. However, the scrip settled at ₹ 35.70, 2.59% higher from its previous closing price.