 "DSE's 'win-win' deal turns sour")
The Delhi Stock Exchange (DSE) has booked losses of over Rs 10 crore as advertisement credits it got for selling shares to three large media houses have gone unutilised.
Bennett, Coleman & Co Ltd (BCCL), TV18 and NDTV had picked shares in DSE five years ago through the ad-for-equity route. The exchange has not been able to utilise a substantial portion of its ad credits. This means, it has virtually parted with equity for free. On the other hand, the media companies themselves have seen the value of their investment plummet, making this one of the first instances where such deals, touted ‘win-win’, turned out to be ‘lose-lose’.
The loss figures were published in DSE’s annual report for 2011-12, presented at the exchange’s extraordinary general meeting (EGM) on March 21. The EGM was called by the management after shareholders rejected the accounts at DSE’s annual general meeting in December 2012. (A SWEET DEAL GONE BAD)
Ad-for-equity is a barter deal in which media houses buy stakes in companies and, in return, promote these firms through advertising and brand building. Though there is little or no actual cash flow, the deal is recorded as two separate transactions for purchase of equity and an advance for advertisements.
Also known as private treaties, these deals were first introduced by BCCL, the publishers of the Times of India, and were subsequently replicated by other media houses, as the concept worked perfectly for all parties in benign market conditions.
In 2007, the Delhi-based exchange had issued shares at Rs 70 apiece to TV18, BCCL and NDTV as part of its demutualisation process, a Sebi-mandated process under which the share of trading members was to be brought below 50 per cent. With the total valuation of the exchange pegged at Rs 212 crore, BCCL got a five per cent stake for Rs 10.58 crore, TV18 picked three per cent for Rs 6.36 crore and NDTV one per cent for Rs 2.12 crore, according to B B Sahney, chairman of the demutualisation committee. Sahney said he was not aware of the exact nature of the ad-for-equity deals, as these were negotiated by the management, then headed by executive director H S Sidhu, who has since quit the exchange. Sidhu was not available for comment.
Some DSE shareholders had objected to the arrangements in 2008, when it emerged the exchange had got to book advertisements on various platforms of these media houses, such as newspapers, television channels and websites, for an amount equivalent to the value of these shares.
This amount reflected in the books of the exchange as ‘non-refundable advances against advertisement contracts’. The advances were to be written down against the cost of the advertisements to be published/telecast to promote the operations of the exchange from time to time.
At that point, it seemed a win-win transaction. However, the exchange could not utilise these credits, as it failed to restart trading operations due to various reasons.
TV18 had outstanding advances of Rs 6.21 crore, which were valid up to September 3, 2012. BCCL had a balance of Rs 1.73 crore on a contract valid up to November 2012. NDTV’s balance of Rs 2.12 crore had already turned bad, since the contract was for a period of three years and expired in September 2010 itself.
While the unused advertisement advances of TV18 and NDTV are close to the value of their stakes, the number against BCCL is substantially lower. “This could be either because there was consideration other than the advertisments or the exchange has used up ad credits,” said a DSE broker.
An official from BCCL’s brand capital department, which handles such deals, directed calls to a colleague. Emails sent to both of them and Times Group CEO Ravi Dhariwal did not elicit any response. A senior TV18 official declined comment. An email sent to the office of NDTV CFO Saurav Banerjee also went unanswered.
In a note to accounts for the year ended 2011-12, DSE said: “In the opinion of management, the above amounts have been paid for the overall business operations and promotion of the exchange. The management is making efforts and is hopeful of getting the extension of time for utilisation of the amount and, therefore, write-off is not considered necessary.”
It added a provision was being made and charged to the profit & loss account for these amounts as “a matter of prudence”.
P Bolusaria & Co Partner Amit Goel said in the auditor’s report, these contracts were prejudicial to the interests of the company. “These advances given are non-refundable and, of the total advances of Rs 11.37 crore given by the company in the earlier years, only Rs 1.30 crore have been utilised by the company towards advertisement services till the year ended March 31, 2012. In our opinion, aforesaid advances, being non-refundable, are prima facie prejudicial to the interest of company. This has resulted into provisioning and consequent loss of Rs 10.07 crore without availing of any services.”
The DSE shares, valued at Rs 70 each by Deloitte at the time of demutualisation, were trading at Rs 15 or less in the unlisted market, according to DSE brokers.
Bennett, Coleman & Co Ltd (BCCL), TV18 and NDTV had picked shares in DSE five years ago through the ad-for-equity route. The exchange has not been able to utilise a substantial portion of its ad credits. This means, it has virtually parted with equity for free. On the other hand, the media companies themselves have seen the value of their investment plummet, making this one of the first instances where such deals, touted ‘win-win’, turned out to be ‘lose-lose’.
The loss figures were published in DSE’s annual report for 2011-12, presented at the exchange’s extraordinary general meeting (EGM) on March 21. The EGM was called by the management after shareholders rejected the accounts at DSE’s annual general meeting in December 2012. (A SWEET DEAL GONE BAD)
Ad-for-equity is a barter deal in which media houses buy stakes in companies and, in return, promote these firms through advertising and brand building. Though there is little or no actual cash flow, the deal is recorded as two separate transactions for purchase of equity and an advance for advertisements.
Also known as private treaties, these deals were first introduced by BCCL, the publishers of the Times of India, and were subsequently replicated by other media houses, as the concept worked perfectly for all parties in benign market conditions.
In 2007, the Delhi-based exchange had issued shares at Rs 70 apiece to TV18, BCCL and NDTV as part of its demutualisation process, a Sebi-mandated process under which the share of trading members was to be brought below 50 per cent. With the total valuation of the exchange pegged at Rs 212 crore, BCCL got a five per cent stake for Rs 10.58 crore, TV18 picked three per cent for Rs 6.36 crore and NDTV one per cent for Rs 2.12 crore, according to B B Sahney, chairman of the demutualisation committee. Sahney said he was not aware of the exact nature of the ad-for-equity deals, as these were negotiated by the management, then headed by executive director H S Sidhu, who has since quit the exchange. Sidhu was not available for comment.
Some DSE shareholders had objected to the arrangements in 2008, when it emerged the exchange had got to book advertisements on various platforms of these media houses, such as newspapers, television channels and websites, for an amount equivalent to the value of these shares.
This amount reflected in the books of the exchange as ‘non-refundable advances against advertisement contracts’. The advances were to be written down against the cost of the advertisements to be published/telecast to promote the operations of the exchange from time to time.
At that point, it seemed a win-win transaction. However, the exchange could not utilise these credits, as it failed to restart trading operations due to various reasons.
TV18 had outstanding advances of Rs 6.21 crore, which were valid up to September 3, 2012. BCCL had a balance of Rs 1.73 crore on a contract valid up to November 2012. NDTV’s balance of Rs 2.12 crore had already turned bad, since the contract was for a period of three years and expired in September 2010 itself.
While the unused advertisement advances of TV18 and NDTV are close to the value of their stakes, the number against BCCL is substantially lower. “This could be either because there was consideration other than the advertisments or the exchange has used up ad credits,” said a DSE broker.
An official from BCCL’s brand capital department, which handles such deals, directed calls to a colleague. Emails sent to both of them and Times Group CEO Ravi Dhariwal did not elicit any response. A senior TV18 official declined comment. An email sent to the office of NDTV CFO Saurav Banerjee also went unanswered.
In a note to accounts for the year ended 2011-12, DSE said: “In the opinion of management, the above amounts have been paid for the overall business operations and promotion of the exchange. The management is making efforts and is hopeful of getting the extension of time for utilisation of the amount and, therefore, write-off is not considered necessary.”
It added a provision was being made and charged to the profit & loss account for these amounts as “a matter of prudence”.
P Bolusaria & Co Partner Amit Goel said in the auditor’s report, these contracts were prejudicial to the interests of the company. “These advances given are non-refundable and, of the total advances of Rs 11.37 crore given by the company in the earlier years, only Rs 1.30 crore have been utilised by the company towards advertisement services till the year ended March 31, 2012. In our opinion, aforesaid advances, being non-refundable, are prima facie prejudicial to the interest of company. This has resulted into provisioning and consequent loss of Rs 10.07 crore without availing of any services.”
The DSE shares, valued at Rs 70 each by Deloitte at the time of demutualisation, were trading at Rs 15 or less in the unlisted market, according to DSE brokers.