Reliance MediaWorks, a loss making company of the Anil Ambani group claims to have found a PE fund which is interested in buying ‘minority’ stake for Rs605 crore in its film and media services division. Can this be true? This is not the first time that the limping entertainment business of Anil Ambani has claimed to have got a large investment by a foreign fund

Anil Ambani-led Reliance MediaWorks said it has signed a term sheet with a “leading international” private equity (PE) fund, under which the fund would buy a minority stake in the company’s films and media services division for Rs605 crore. But this is not the first PE fund investment in the Reliance Anil Dhirubhai Ambani (R-ADA) group company.

Reliance MediaWorks, in a regulatory filing said, “...in terms of which the potential investor has provided an indicative non-binding proposal to acquire a substantial minority stake in Reliance MediaWorks’ Film and Media Services division for an investment of Rs605 crore.”

“Reliance MediaWorks and the potential investor have agreed to exclusivity for the next 90 days. The proposed investment is subject to completion of customary detailed due diligence, definitive documentation, completion of subsidiarisation of the film and media services business and approvals as may be necessary,” the company said in the regulatory filing.

Following the announcement, Reliance Entertainment shares jumped 8% on the BSE. It closed at Rs62.40 or 5.8% higher while the benchmark Sensex closed 0.47% up at 17,185.

Four years ago, billionaire investor George Soros was supposed to invest $100 million for buying a 3% stake in Reliance Entertainment. Both parties signed a term sheet in March 2008. However, the deal was stuck later over valuation of the company and other issues. The announcement about investment by Soros pushed up Reliance Entertainment’s share price and valuation. With 3% stake coming at $100 million, the company was valued at about $3 billion. But there was no further progress. It is doubtful whether Soros has actually made the promised $100 million investment. The exchanges and the market regulator stay blind to such efforts to news items which temporarily influence prices.

Reliance MediaWorks, formerly Adlabs Films, has 500 movie theatres branded as BIG. For the full year ended March 2012, its loss widened to a huge Rs411.4 crore from Rs256.2 crore, while its total revenues fell to Rs495.5 crore from Rs524.9 crore in the year-ago period. Its theatrical exhibition segment reported the biggest loss of Rs141.6 crore, a steep rise in loss of about 95%, from a loss of Rs72.8 crore, same period last year. It is the same segment that is responsible for garnering maximum revenues for Reliance MediaWorks. For FY12, revenues from this segment increased marginally to Rs375.7 crore from Rs361.1 crore last year. Who would put money in a venture like this?

The R-ADA Group in general has been strapped for cash because many of its businesses have been doing badly—as is reflected in stock prices which have hit multi-year lows.

Just last month, Canada-based independent research firm Veritas, in a report titled, “A House of Cards” alleged that Reliance Communications (RCom), another company of the R-ADA group, is entering a phase of maximum uncertainty. The report states that the management will have to work out the debt repayment obligations of nearly $2.2 billion over the next two years even as the EBIDTA in its core telecom business is languishing.

RCom has been trying to hive off its tower business unit, Reliance Infratel since past few years. It started with GTL Infrastructure agreeing to combine its tower business with Reliance Infratel by paying Rs11,000 crore to Rs12,000 crore as cash component of the deal valued at Rs50,000 crore. However, it fell through over differences over valuation and funding between the two companies.

Late in 2011, RCom started talks with PE funds like Blackstone and Carlyle for offloading its 95% stake in Reliance Infratel. The deal was supposed to be closed in January this year. According to media reports, after several rounds of negotiations, the PE funds have signed a term sheet to buy stake in the telecom tower company.