In recent times, there has been a huge debate on cross-media ownership in India. At present, such laws are rare, for both horizontal (presence across platforms in print, TV, radio and Internet) and vertical (presence along the value chain, say, in TV broadcast and distribution like cable and DTH) integration and dominance. TRAI has now floated a consultation paper on these issues, even though its recommendations in 2009 were not implemented by the government.

But before the government takes a final call on how to restrict cross-media ownership, especially in news media, to enhance diversity, it needs to understand the nuances of how media control is exercised in the Indian context. In many cases, ownership and control are achieved through indirect means; in others, there is a lack of transparency in pinpointing the real owners. In some cases, government-imposed equity caps and other restriction are flouted through legal loopholes.

Alam Srinivas, a senior business journalist & author and MPL Fellow, has written for The Indian Medialogue a series of pieces which will highlight these discrepancies and ground realities. The idea is to enable policy makers and regulators to get a grasp of what really happens in the real world of news media so that their decisions can incorporate these nuances. This is the first of the series.

Indirect Control through Loans

Let us consider the example of the deal between Reliance Industries Ltd (RIL), owned by Mukesh Ambani, and the Network18 Group, which owns channels such as CNN-IBN, CNBC 18 and CNBC Awaaz. In 2012, RIL invested Rs 1,700 crore in Raghav Bahl’s Network18. This should have allowed anyone to claim that the ownership of the Network18, with a clutch of news and entertainment TV properties, had changed, and gone into the hands of India’s largest private sector business group.

Alam 1_ Raghav Bahl

The design of the Bahl-IMT deal

Instead, the opposite happened. Bahl announced that the ownership and control of his group remained the same as before. He added that RIL had no stakes in any of his group companies. On TV shows on CNN-IBN, its anchors issued the disclaimer that RIL was not an owner or shareholder of the Network18 Group. How was this possible? The fact is that the RIL-Network18 deal was designed in such a manner that there was no ‘legal’ change in the promoters of the TV chain.

Initially, RIL formed a trust, Independent Media Trust (IMT), where RIL’s promoters (Mukesh Ambani and his family) had no direct representation. IMT received money from the RIL Group and extended a loan to Raghav Bahl. The loan was not given to any of Network18 Group’s listed firms, or those that directly managed the TV channels. Instead, it was a ‘personal’ loan to Bahl and his unlisted firms through which Bahl owned stakes as a promoter in his TV ventures.

Optionally convertible debentures (OCDs)

The loan by IMT was in the form of optionally convertible debentures (OCDs), which are basically debt instruments with a fixed annual rate of return and carry no voting rights. Only at a later date, if acceptable to both the lender and the recipient company, the OCDs could be converted into shares. Legally, until the conversion of the OCDs into shares, neither RIL, nor its companies, nor IMT had any stakes in either Network18 or Raghav Bahl-owned unlisted entities.

Alam 1_Network18graph

However, the issue of control in this case came in the manner in which Bahl and his privately-owned companies used the Rs 1,700 crore they got from IMT. At that time, the Network18 Group had huge debts that it could not service. It had to raise monies to prepay this loan so that the lenders to the listed companies (which ran the TV channels) did not convert their loans into equity under a corporate debt restructuring plan. This would have reduced Bahl’s holdings and his stature as a promoter. Even if the conversion didn’t happen, the huge debt could have financially killed the Network18 Group.

The Network18 Group, therefore, decided to raise over Rs 4,000 crore through two rights issues of Network18 Media, a listed company, and TV 18, its subsidiary. The problem arose that if Raghav Bahl and his privately-held entities had to maintain their shareholding at the same level as they had as promoters, they would have had to pump in Rs 1,700 crore to subscribe to their entitlements in the two rights issues. This was the amount loaned by IMT through OCDs to Bahl, and used for the purpose. Of the Rs 4,000 crore raised, half of it was used to repay the debt.

Bailing out Raghav Bahl

Clearly, IMT (indirectly through RIL) bailed out Raghav Bahl, the promoter of Network18 Group. The former came across as the ‘white knight’ to help Bahl. Now, if IMT did that, would it not ask for something in return, which would both be stated and unstated? Would it not result in some form of an indirect control over Raghav Bahl, the promoter of Network18 Group? Should we assume that RIL and IMT helped out Bahl because of their moral conscience to help a media group?

In fact, under the agreement between Raghav Bahl and IMT, there were two stated benefits to RIL. The first was that RIL and its group companies received more money from the Network18 Group than the ‘personal’ loan IMT gave to Bahl. In a sense, RIL made a killing on the deal. This was achieved in the following way. Over the past few years, RIL’s group companies invested Rs 2,600 crore to purchase huge stakes in the Andhra Pradesh-based Eenadu Group’s news and entertainment TV media properties.

Alam 1_Network-18-ETV

These stakes included 100% holdings in regional news channels (ETV Uttar Pradesh, ETV Madhya Pradesh, ETV Bihar and ETV Urdu), 100% holdings in regional entertainment channels (ETV Marathi, ETV Kannada, ETV Bangla, ETV Oriya and ETV Gujarati), and 49% in two Telugu channels (ETV Telugu and ETV Telugu News). Under the agreement, the Network18 Group invested over Rs 2,000 crore (the remaining half of the amount raised through the two rights issue after paying off its debt) to purchase 100% stakes in ETV’s regional news channels, 50% in ETV’s regional entertainment channels and 24.5% in the two Telugu channels. Thus, while IMT loaned Rs 1,700 crore to Bahl, RIL got back Rs 2,000 crore.

Spadework for the RIL’s 4G broadband telecom network

As per the Bahl-IMT deal, a MoU was signed between RIL’s broadband subsidiary, Infotel, and the Network18 Group. This specified that Infotel, which plans to set up 4G broadband telecom network across the country, would have ‘preferential’ access to all the web and media properties of Network18 Group. Thus, RIL gained access to exclusive news and entertainment content for its telecom network through the TV channels, whose promoter was Raghav Bahl.

Alam 1_Reliance-Infotel-Plans-Ambitious-4G-Wireless-Broadband-Launch

For the sake of final analysis, even if the OCDs issued to IMT by Bahl’s privately-held firms do get converted into equity in the near future, Bahl could still claim that he was the owner of the Network18 Group, and the ownership structure hadn’t changed. This is because IMT, as per the conversion formula, may remain a minority shareholder (say, 49%) in Bahl’s private firms and, therefore, allow Bahl to say nothing has changed legally. In addition, IMT, a so-called independent trust, would own the shares, not RIL, and it would do so in Bahl’s private firms and not in Network18 Group’s listed companies.

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Mr. Alam Srinivas

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