Ronnie Screwvala also ceased to be the managing director of the UTV Software Communications but will continue to be a whole-time director of the company
New Delhi: Media and entertainment firm UTV Software Communications on Friday said Rohinton Screwvala, Unilazer Exports and Management Consultants Ltd and Unilazer Hong Kong Ltd (Unilazer HK) have sold all their shares in the company to the Walt Disney Company (South East Asia) Pte Ltd (TWDC SEA) for an undisclosed amount, reports PTI.
The shareholders' agreement between Rohinton Screwvala, Unilazer , Unilazer HK and TWDC SEA has been terminated with effect from February 2, 2012, UTV Software Communications said in a filing to BSE.
The firm yesterday said it has fixed the exit price for shareholders at Rs1,100 per share as part of its complete acquisition by US-based Walt Disney Company.
"The acquirer (The Walt Disney Company Southeast Asia Pte Limited) has accepted the discovered price of Rs1,100 per share and shall acquire all shares tendered through valid bids at or below the exit price," the earlier filing had said.
In July last year, UTV Software had announced that Walt Disney Co has offered to buy out stakes held by public shareholders and other promoters of the company in a deal valued around Rs 2,000 crore.
Subsequently, in December, 2011, the Cabinet Committee on Economic Affairs (CCEA) approved the deal.
As of 31 December 2011, the promoter and promoter group shareholding in UTV stood at 70.04%, including 50.28% owned by Walt Disney Company (South East Asia) Pte Ltd.
Rohinton Screwvala has also ceased to be the Manging Director of the company, but will continue to be a whole-time director of the company, UTV said.
UTV operates in five verticals— broadcasting, games, motion pictures, digital content and television content.
Shares of UTV Software Communications Ltd were being quoted at Rs 1,063 apiece in afternoon trade on the BSE today, down 0.38% from their previous close.
No one would perhaps know what was the urgency for the Factoring Bill – it is not as if factoring business was a mushrooming business which needed regulation
The Parliament recently passed the Factoring Regulation Bill 2011 (‘Factoring Bill’ or ‘Bill’) . Given the fact that several other important bills have taken years to ascend into the statute book, the Factoring Bill has really been commendably quick to progress. No one would perhaps know what was the urgency for the Bill – it is not as if factoring business was a mushrooming business which needed regulation. On the contrary, factoring is an idea that the RBI has been meaning to promote over decades, and there has not been any substantial pick up in factoring volumes over the years. If at all factoring business needed anything – it was support and promotion. But the tone of the Bill is far from promotion – it is full of a regulatory slant. This is exactly the model that RBI used when passing the Securitisation Act – with the idea to promote securitisation, and it ended up in regulating securitisation to the extent that no securitisation transaction has ever happened so far under the Act.
The regulatory tone of the Bill apart, the Bill seeks to enact the provisions of the UNCITRAL model law on assignment of trade receivables , which itself, 11 years after its proposition, has been affirmed only by 4 countries in the world.
Factoring: a slow starter
The government’s efforts at promoting factoring date back to 1988 when the RBI appointed the Kalyansundaram Committee. Subsequently, the RBI allowed banks to enter factoring by a notification in 1991. Some banks did respond by starting dedicated factoring companies – SBI Factors, Canbank Factors etc were started.
However, factoring has obviously not been something to attract the fascination of either the banks or the NBFCs. The factoring volumes in India have not been significant enough, and unlike other facets of NBFC activity, factoring business has not drawn foreign players to any appreciable extent, except recently when some foreign banks seem to have begun factoring services.
While factoring might have picked up much, receivables financing has continued to grow with the growth of the NBFC sector. The NBFC sector today views receivables as much as a part of asset-based financing as other tangible assets. And lot of investments in happening today in the infrastructure as well as IT sector where the basis of investment is receivables. To give instances – a PSU/ government department goes for a massive system upgradation where equipment and services are provided by an aggregator, who in turn finances himself based on the receivables committed by the client. Receivables discounting is also common as a mode of sales-aid financing –several software and hardware vendors provide the facility of instalment or deferred payments to their clients and in turn sell the receivables to finance companies.
None of this is factoring in the real sense, because none of the so-called receivables financiers are going anywhere beyond pure financing.
Besides receivables financing, strands of activity are also going in the field of export receivables factoring.
The Factoring Bill: bringing receivables financing into regulatory ambit..
First of all, was there a case at all that a factoring company was not covered by the regulatory ambit prior to the enactment of the new law? If the factoring activity was being carried out as a true acquisition of receivables by the factor, it is possible to argue that what is a purchase of receivables cannot be a financing transaction, and hence, a factor is not a non-banking finance company under existing definition in the RBI Act. However, most factors actually carry out full recourse factoring – with features that hardly imply an intent of purchase of receivables – hence, such activities nothing but lending on the security of receivables, and hence, would still amount to a “financial business” for being regulated as an NBFC.
Therefore, if the law is based on the premise that factors were not regulated so far, and the idea is to regulate them, the basis is misplaced.
As regards receivables financing - admittedly, this is a financing activity and hence, the business is a “financial business”, bringing the business under RBI supervision.
However, the key feature of the existing NBFC regulation is that financial business needs to be the “principal” business to bring an entity into NBFC domain. If a non-banking, non-financial entity carries financial business, it may still retain its status as a non-financial business as long as the business remains “non-principal”. The RBI has been using a percentage of assets and income as the criteria for determining principality.
.. even if it is not the principal business
If the idea of the Bill is to bring entities engaged in factoring business into the regulatory ambit, let us examine to what extent does the law go in meeting this objective.
First of all, the Bill defines “factoring business” to include both acquisition of receivables as well as receivables financing. That is to say, any financial transaction where receivables are accepted as a security. Clearly, the definition is thoughtlessly inserted and can be stretched to completely unintended extent. For example, if someone gives a loan against a machine, and accepts receivables as a collateral security, it is certainly not a transaction of financing of receivables, but looking the way the definition is worded, the transaction will amount to “factoring business”.
The biggest problem lies in the language of sec. 3 which says – no factor shall commence or carry on the business of factoring without RBI registration. The word “factor” is defined in sec. 2 (i) as a non-banking financial company, a body corporate, or any other company. Sec 3 (2) and its proviso pertain to an NBFC presently carrying out, as its principal business, on the date of commencement of the Act. However, sec 3 (1) nowhere says that the provision will be applicable only where the factor carries on factoring as its principal business. That is to say, if the language of sec. 3 is taken as it is, every company carrying on factoring business, whether as a principal business or not, needs to apply for RBI registration.
The only exception to this will be banks, and statutory corporations, in term of sec 5 of the Bill.
This brings a completely over-stretched arm of the Bill which requires mandatory registration, and RBI supervision, in case of non-financial companies which may be engaged in acquisition or security interest over receivables as a non-principal activity. Several manufacturing/trading companies do so. Several IT companies may also be doing the same.
There is an exception specifically made in case of securitisation transaction, further reinforcing the assumption that whether or not the business of factoring is the main business, registration under the Bill becomes mandatory.
Thus, NBFCs will need registration under the law only if their principal business in factoring, but other companies, excluding banks, will come under the registration requirements irrespective of whether factoring business is principal business or not. If it is a business, it will come under the law.
The substantive provisions of the law inclusively pertain to giving effect to an assignment agreement. Section 7 provides that an assignment shall be effective between assignor and assignee on the execution of the agreement, and section 8 provides that no right shall exist against the debtor unless the debtor has been served with the notice of assignment. This is exactly the common law position understood through more than a century. Sec 130 of the Transfer of Property Act provides for the same thing and common law jurisdictions all over the world work on the same principle. This was the law before; this remains the law after the Bill.
To put the point in perspective, several assignment of receivables are “silent” assignments – meaning, the fact of the assignment is not notified to the debtor. This is the universal practice in case of securitisation transactions. In case of financing transactions also, the lender typically does not need to, and hence does not, notify the obligor.
However, section 17 of the Bill makes silent assignments completely fragile and almost impossible. This section says that in case of silent transfers, the assignee will be bound by any such modification of the original contract that the assignor may make with the debtor. It is only after the notification of the assignment that such modifications become ineffective. That is to say, unless the assignee gives immediate notice of the assignment to the debtor, the assignee is virtually at the mercy of the assignor. This provision is borrowed from UNCITRAL model law on international assignment of trade receivables, but will certainly give major jolt, particularly those who lend money against receivables. By way of saving grace, the provisions of the Bill have been excluded in case of securitisation transactions, but what is a securitisation transaction itself will remain queer.
The Bill mandates registration of all assignment transactions, and also satisfaction of claims of the assignee. Non-registration does not affect the validity of the assignment; registration does not amount to a notice to the debtor. However, non-registration is punishable with a fine upto Rs 5000 per day.
The registry office is the Central Registry under the SARFAESI Act, currently being run by NHB.
The way the language of the law is, filing notice of satisfaction or realisation of a debt may, in case of instalment or partial payments, notifying innumerable events. In case of trade receivables, factoring transactions involve revolving lines of credit, with numerous receivables getting assigned in succession. Hence, the mandatory registration requirement, with no advantage as to validity or deemed notice to the obligor, only impose an added administrative burden.
In conclusion, the Factoring Bill does not fill any legislative gap; does not take further the common law provisions which were any way flexible enough. It does not answer the needs of trade. It is not something that was urgent in terms of regulating something that was growing unwieldy. It was nobody’s need. And it fills nobody’s needs either.
(Vinod Kothari is a CA, trainer and author with offices in Mumbai and Kolkata. He is an expert in securitisation, asset-based finance, credit derivatives, accounting for derivatives and microfinance. He authored "Securitisation, Asset Reconstruction and Enforcement of Security Interests". He can be contacted at vinodkothari.com.)
The rating agency forecasts that advertising growth would slow down over the course of the year due to moderation in economic growth and cost cutting by corporates
Against the backdrop of a troubled economy, the media sector is in for a slowdown. According to an outlook report by Fitch, TV broadcasters generate 70%-90% of revenues from advertising compared with about 70% for newspaper publishers, and are therefore likely to be the worse hit.
“Moderation in economic growth and cost reduction initiatives by corporates lead to slower growth in advertising spending. Fitch reduced India’s GDP growth forecast for year ending March 2012 (FY12) and FY13 by 0.5% each to 7.0% and 7.5%, respectively. Fitch expects lower adspend growth to hamper revenue growth and profitability of the two key media segments – print and television broadcasting. These two segments represent over half of the Indian media and entertainment industry, accessing over 80% of the adspend,” says the report.
Industries which contribute to at least 75% of the adspend– FMCG, pharmaceuticals, realty, services and banking –are expecting muted revenue growth, and are likely to stick to cost reduction moves. “Fitch believes adspend growth will remain subdued in 2012. However, Fitch believes that it is unlikely that growth rates will be as low as the ones observed in the 2009-10 period,” the report says.
During 2009-10, print media industry saw single digit growth rates for six consecutive quarters starting Q3FY09. Broadcasting was also affected during this period, but the impact was less than on print. Fitch expects the Indian media industry to grow at the rate of 8% to 12% in 2012.
Another factor which will have a significant impact on print media is the rise in newsprint prices. The report says that urban-centric newspapers that use a higher proportion of imported newsprint will be more affected thanks to the depreciation of the rupee. “With high newsprint costs and lower revenue growth, the agency expects the margins of the print media industry to fall to the range of 18% to 22%. Broadcasting industry margins are expected to fall to the range of 24% to 28%,” says the report.
This does not bode well for the already ailing sector. According to their respective balance sheets for March 2011, Den Networks has a debt of Rs154.71 crores, and Hathway Cable & Datacom Ltd. of Rs 275.81 crores. DQ Entertainment International has a debt of Rs 75.61 crores. In the last quarter, ending 31st December, Cinevistaas, DQ Entertainment and Den Networks saw their stock prices drop by 20%, 36% and 28% respectively. The only exception is Hathway Cable, which saw an increase of 30% in its stock prices.
However, there is hope, says Fitch, in form of Phase III Radio auctions and mandatory digitisation. However, radio auctions, though profitable in the long run, may have a negative effect on the credit profiles of the entrants. The digitisation move will prove beneficial for multi-system operators in the medium-to-long term.
“However, the proposed mandatory digitisation will require significant capex to develop the digital infrastructure. The agency believes that the expected improvement in the business profile of MSOs would outweigh any financial risks stemming from large debt-funded capex in the short-term,” says the report. MSOs like Hathway Cable & Datacom, who have voluntarily started the digitisation process, are expected to better manage the overall execution and financial risks better, anticipates Fitch.