Regulator Sebi today ordered a little-known entity, Vishvapradhan Commercial, to make an open offer for NDTV Ltd for indirectly acquiring control of up to 52 per cent stake through a convertible loan of Rs 350 crore in 2009 'sourced' from a subsidiary of Reliance Industries Ltd.

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The ownership of Delhi-based 'wholesale trading' firm Vishvapradhan Commercial Private Ltd (VCPL), incorporated in 2008, is said to have later changed hands from RIL to Nahata group, from which the Mukesh Ambani-led firm had bought Infotel Broadband in 2010 to re-enter the telecom business.

The order follows a probe into alleged violation of takeover norms by VCPL regarding the loan with a 10-year tenure ending July 2019, with various clauses giving it control for up to 52 per cent of the media firm, the regulator said.

Separately, Sebi is also understood to have issued show-cause notices in this case to NDTV's promoters -- Prannoy Roy, his wife Radhika Roy and their holding firm RRPR for alleged non-disclosure of the loan pact with VCPL and affiliate entities. 

While ordering the open offer -- for buying up to 26 per cent shares in NDTV from public shareholders as per Sebi rules -- the regulator observed that VCPL had -- in a letter dated March 25, 2016 -- stated that the "source for the loan was the borrowing from Reliance Strategic Investment Limited, a wholly owned subsidiary of Reliance Industries Limited".

While the Sebi order did not get into details of VCPL's ownership structure, it observed that the company had a revenue of only Rs 60,000 in FY2017 and more than Rs 400 crore in long term loans and advances. 

Stating that the financial statements provided by VCPL question its motive in entering into the loan pact with the NDTV promoters, Sebi said it was clear that they did "neither have the history of advancing such loans nor do they appear to have had the financial wherewithal to advance loans on such liberal terms".

Sebi said the loan and call option agreements appeared to have been used to shroud the true nature of the transaction which was acquisition of beneficial interest in NDTV. 

"The elaborate mechanism adopted by the noticee (VCPL) and its associates appear to be solely to deflect attention from this acquisition and thus covetously overcome the obligations imposed by the Takeover Regulations," Sebi said. 

Sebi has asked VCPL to make a public offer for NDTV within 45 days and also pay, along with the offer price, an interest at the rate of 10 per annum to the shareholders who were holding shares on the date of violation.

In its 28-page order, Sebi said the NDTV promoters had made an open offer in 2008, and had taken a loan of Rs 540 crore from Indiabulls top finance that.

To repay this loan, another loan of Rs 375 crore was taken from ICICI Bank, which in turn was was repaid in 2009 by taking Rs 350 crore loan from VCPL vide an agreement dated July 21, 2009.

Listing out significant clauses of the Loan Agreement, Sebi said it was an unsecured loan without any interest payment.

Besides, the Agreement provided for RRPR issuing a warrant to VCPL, convertible into equity shares aggregating to 99.99 per cent of RRPR at the time of conversion at any time during the tenure of the loan or thereafter. This clause itself would translate into 26 per cent stake in NDTV.

Besides, it gave VCPL right to purchase from promoters all equity shares of RRPR at par value. In addition, there were two call option agreements which were entered into between Subhgami Trading Private Limited and RRPR, and Shyam Equities Private Limited and RRPR, respectively.

The call option gave the two entities -- Subhgami Trading and Shyam Equities-- the right to purchase up to 26 per cent stake in NDTV from RRPR. These entities were associates of VCPL's shareholders at the relevant times.

Sebi said the agreements fortified the strategy adopted by VCPL to spread its reach up to 52 per cent of NDTV shares in two ways -- indirect acquisition of convertible warrants of the holding company; and by purchase of a freely exercisable call option to buy 26 per cent shares of NDTV.

Further, the regulator observed that the transaction "is not to secure the loan but to acquire control over all the affairs of the target company leaving only the right to control the editorial policies of NDTV to the promoters and borrowers, right from the day of execution of the loan agreement." 

Sebi said this shows the takeover exercise has been conveniently couched as a loan agreement with the predominant intention of VCPL being to acquire control over NDTV without contemplating any repayment of the loan, whatsoever, from the promoters or borrowers.

After looking into submissions before it, Sebi ruled that VCPL did indirectly acquire control in NDTV Ltd, by entering into the loan and call option agreements, thereby obligating it to make an open offer under takeover regulations.

Sebi said the conversion option entitling VCPL to 99.99 per cent of RRPR shares has a perpetual existence and can be exercised even after the loan is settled. 

The call option clause is also devoid of any time limitations and endows VCPL the right to acquire 26 per cent of NDTV at any time with no linkage to the loan. 

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Besides, the call option strike price was set high at Rs 214.65 per share, which made the claim of it being a collateral "very hollow", Sebi said.

NDTV shares today closed 2.7 per cent lower at Rs 32.50 at the BSE -- which is just 15 per cent of the call option price.