The move raises issues like who benefited from the debt write-offs and whether previous financial statements were fudged?
Almost three years years after Reliance Industries Ltd (RIL) bailed out the Network18 group by injecting Rs1,700 crore and one month after it acquired direct control by investing another Rs4,000 crore, ejecting promoter Raghav Bahl and some celebrity anchors, the two group companies, TV18 Broadcast Ltd (TV18) and Network18 Media and Investments Ltd (Network18) have reported a combined write-off of Rs1,268 crore in their June quarter results. This is 75% of the original investment made by RIL.
On Tuesday, TV18 reported a consolidated net loss of Rs214.06 crore in the first quarter of FY2014-15 compared to a profit of Rs3.87 crore in the same period a year ago. What’s surprising is that the media firm has reported a consolidated profit of Rs9.11 crore (before tax) in the latest quarter, but it wrote off a huge Rs223.28 crore under ‘exceptional items’.
What comprises the exceptional items? According to the notes to the TV18 financial results, Rs122.26 crore has been considered for the ‘obsolescence/impairment in the value of certain tangible and intangible assets’, Rs87.70 crore reported as ‘Write-off of provisions of non-recoverable loans, advances, receivables’ and Rs13.31 crore has been deducted towards ‘severance pay and consultancy charges’. What these tangible and intangible assets are and the details of the debt have not been disclosed.
Network18 has reported a huge consolidated loss of Rs1,021.88 crore for the June 2014 quarter, compared to a profit of Rs18.90 crore in same quarter last year. While Rs25.06 crore has been declared as an operating loss, as much as Rs1,045 crore has been classified as expense under exceptional items. Here, as high as Rs234 crore has been considered as the ‘diminution in the value of goodwill’ and Rs519 crore of debt has been written-off and another Rs142 crore has been considered as the loss in value of certain investments.
Here, the severance pay and consultancy charges have been reported as Rs20.94 crore and the loss in value of certain tangible and intangible assets has been reported as Rs127 crore. No further details of these items have been mentioned.
The question is what happened between March 2014 and June 2014 to warrant such large scale write-off? If no significant event has happened, does this mean that these assets were being carried in the books at inflated values all this while? We asked the Reliance group for details and are awaiting their reply. We would incorporate their views as and when we receive it.
On 7 July 2014, Independent Media Trust (IMT) a subsidiary of Reliance Industries took over the controlling stake of TV18 Broadcast and Network18 Media and Investments.
Earlier, in May 2014, RIL said its board funding of up to Rs4,000 crore to IMT, of which the company is the sole beneficiary, for buying control in Network18, including its subsidiary TV18. “IMT would use the funds to acquire control over NW18 and TV18 resulting in ownership of about 78% in NW18 and 9% in TV18 and to acquire shares tendered in the Open Offers,” RIL had said in a statement.
RIL’s deal with Raghav Bahl of Network18 group is one of the most complicated deals of all time. According to a press release, issued by RIL at that time, promoter companies of Network18 and TV18 and the IMT entered into a Term Sheet under which the Trust would be subscribing to the Optionally Convertible Debentures (OCDs) to be issued by the Promoter Companies.
This was the first part of the deal. In the second part, Infotel Broadband Services (now Reliance Jio Infocomm), a unit of RIL, signed a memorandum of understanding (MoU) with both, TV18 and Network18 for preferential access for distributing all contents of the media group companies through its fourth-generation (4G) broadband network. As per the agreement, RIL was to divest part of its interest in Eenadu TV (ETV) channels to TV18.
Both Network18 and TV18 were raising funds worth Rs2,700 crore, each, through rights issues. Network18, the promoter and majority shareholder in TV18 was to subscribe to around Rs1,400 crore out of the total Rs5,400 crore rights issue. “The contribution of the current promoter entities of Network18 in this net aggregate rights issue of both Network18 and TV18 will be about Rs1,700 crore,” the companies had said in a regulatory filing at that time.
Earlier, RIL had admitted that the company and its group companies invested Rs2,600 crore in Ushodaya Enterprises, the holding company of ETV channels. As per the deal with Mr Bahl, the Mukesh Ambani group divested its 100% interest in ETV news channels, 50% in entertainment channels and 24.5% interest in Telugu channels to TV18.
RIL had said, its acquisition of TV18 and Network18 would differentiate its 4G business by providing a unique amalgamation at the intersect of telecom, web and digital commerce via a suite of premier digital properties. This suite includes In.com, IBNLive.com, Moneycontrol.com, Firstpost.com, Cricketnext.in, Homeshop18.com, Bookmyshow.com and the broadcast channels Colors, CNN IBN, CNBC TV18, IBN7, CNBC Awaaz.
More than two decades ago, Reliance had made a bid to enter the media by buying the Observer newspaper which it ran half-heartedly and closed down. Anil Ambani, the estranged and debt-strapped younger brother of Mukesh was leading that effort. The ADAG group controlled by Anil Ambani has large stakes in TV Today and other media companies.