In your interest.
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No beating about the bush.
Sanjay Dutt, director of Quantum Securities and a long-term shareholder of NDTV has alleged that chairman Prannoy Roy received irregular promoter funding of Rs375 crore by pledging NDTV shares which, according to him, is against the RBI rules
In August 2011, Moneylife wrote: “NDTV got listed in 2004 and is trading below its listed price after seven years. It has given a negative return of 19% compounded in the past five years and a total shareholder return (TSR) of negative 66% for the same period. Its viewership claims, like those of all TV channels, are impossible to verify. Its credibility is at a nadir (after the recent phone-tapping controversy) and its finances are in a mess. NDTV has rarely made money from operations. For the past few years, its consolidated operations have been making cash losses and it has been running on money made by selling loss-making subsidiaries to strategic investors.”
We further pointed out how marquee institutional investors always line up to acquire this loss-making company’s bits and pieces and exit at a loss at regular intervals, only to make way for other big name investors! The latest was DE Shaw which provided an exit to Goldman Sachs in 2011 by acquiring a 14.2% stake. After this, NDTV acquired a significant investor—Abhay Oswal, who owns nearly 15% of its equity but seems to have no presence on NDTV’s board of directors. Mr Oswal happens to be the father-in-law of Navin Jindal, an industrialist and Congress Member of Parliament.
In all these years, no investor has complained, or uttered a word of public criticism, about the losses and operations of this strange company. But, a few weeks ago, Moneylife received an email from Sanjay Dutt, director of Quantum Securities P Ltd, a name familiar to all those who watch the business TV regularly. Mr Dutt said that his firm is a long-term shareholder of NDTV and holds over 1% of its equity capital. He also disclosed that he had worked as a consultant with the group from 2006 to 2008 and has been a personal friend of the current CEO for over 15 years. But, more about that later. Mr Dutt was writing to make some startling allegations about NDTV’s capital structure.
He alleges that chairman Prannoy Roy received irregular promoter funding to the tune of a massive Rs375 crore by pledging NDTV shares which, according to him, is against the Reserve Bank of India (RBI) rules. The loan was made to a company called RRPR Holdings Private Limited in October 2008 against the pledge of NDTV shares.
RRPR Holdings has a capital of only Rs1 lakh and is 100% owned by Prannoy and Radhika Roy, says Mr Dutt in a letter to Dr KC Chakrabarty, RBI deputy governor, in April 2013. RRPR Holdings’ only asset and business is the 29% equity holding of NDTV. He further alleges that the loan to RRPR Holdings was made without even a mandatory haircut and, at times, in excess of the company’s market value. Of course, the loan was backed by the personal guarantee of a director.
Mr Dutt has obtained certified information from the Registrar of Companies (ROC) to back his allegation and written a formal complaint to RBI’s department of banking supervision at the end of April, with copies of his findings. All these documents are also available with Moneylife. Mr Dutt further alleges that the pledge of promoter holding has not been made public, as mandated by the listing agreement of stock exchanges.
I wrote to NDTV’s CEO, Vikram Chandra, seeking a response to Mr Dutt’s allegations. Within a couple of hours, I received a 1,600-word response from KVL Narayan Rao, executive vice chairperson of the NDTV group. Curiously, the letter did not answer Mr Dutt’s simple allegation about promoter funding in violation of RBI norms. Mr Rao wanted a couple of days to respond to those. Instead, he wrote about how Quantum Securities, a brokerage firm, was an active trader in NDTV shares. Mr Rao called Sanjay Dutt a ‘stock market manipulator’ who had settled charges with the Securities & Exchange Board of India (SEBI) by paying Rs53.41 lakh under a consent order.
According to Mr Rao, the company had yet to receive a response from Mr Dutt about whether he had indulged in similar trading in NDTV shares. The SEBI order of January 2013, which is on the regulator’s website, shows that Quantum Securities was accused of synchronised and circular trading in GHCL shares and paid Rs33.41 lakh in a consent deal, while Sanjay Dutt and Prenita Dutt, together, paid Rs15 lakh to settle charges against them.
Mr Rao then goes on to tell us that Sanjay Dutt was a consultant with NDTV and that he was paid a hefty Rs2.6 crore for his services over less than two years. This included several foreign trips to structure overseas subsidiaries for its foray into ‘non-news areas’. He was also given some shares in subsidiary companies which he had to forfeit when he left the company in 2008, allegedly because he could not get along with people.
Mr Rao says that Mr Dutt holds a ‘grudge’ against NDTV and has ‘misused’ and ‘distorted’ confidential information obtained as a consultant to level charges against the company in letters to various regulators as well as to NDTV’s board of directors.
In fact, according to him, Sanjay Dutt’s actions do not fall in the realm of ‘shareholder activism’ but are ‘blackmail, extortion and defamation’ which ‘amount to criminal offences under Indian Penal Code’.
This then raises another question. Why has NDTV not initiated action against Mr Dutt so far? Clearly, neither side is telling us the whole truth. Mr Dutt is clearly not your usual activist investor; but it is also hard to imagine that a mere ‘grudge’ would motivate him to start a war against an extremely powerful media house like NDTV. As a person who has been in the organisation, Mr Dutt is also fully aware of NDTV’s phenomenal reach and connections in the Congress government.
On the other hand, what is holding NDTV back? Why has it not initiated action against Mr Dutt, if it is fully aware of his allegedly ‘defamatory’ letters to multiple regulators? Is it far more convenient for NDTV to simply use its clout to silence the regulators? Have any of them asked NDTV raised these issues about the frequent changes in its equity capital and Mr Dutt’s allegations?
Since Mr Rao says that Sanjay Dutt has written to NDTV’s board of directors, have the independent directors raised these issues? Surely, all of NDTV is not scared of what Narayan Rao calls Mr Dutt’s ‘bouts of uncontrollable rage and anger’?
Incidentally, Mr Dutt studied at the Doon School, is a chartered accountant, like Prannoy Roy, and is an IIM-Ahmedabad alumnus. The Quantum Securities’ website says that he was with the firm since 1994, but does not mention why he gave it up to act as a consultant to NDTV for the two peak years of the most ferocious bull market that India has seen.
An earlier version of the website listed the economist Dr Surjit Bhalla as a third member of the Quantum Securities management team. Dr Bhalla’s Oxus Fund Management was a division of Quantum. Dr Bhalla is on several SEBI and government committees and used to be close to NDTV, but is now independent.
Ironically, Quantum’s website, at one time, had listed among its ‘prominent’ clients Dr Prannoy Roy. Is there more to this unravelling story than meets the eye so
Here is the detailed letter we received from Mr Rao, after sending this article for printing...
And here is the response from Mr Dutt on Mr Rao's letter...
Sucheta Dalal is the managing editor of Moneylife. She was awarded the Padma Shri in 2006 for her outstanding contribution to journalism. She can be reached at [email protected]