FCCBs may hold the key in battle for Fame India

The FCCB issued by Fame India in 2006 and the stake owned by some inconspicuous parties could tilt the balance in either Inox's or RML's favour

The fierce battle between Reliance Mediaworks Ltd (RML) and Inox Leisure Ltd (Inox) to buy Fame India Ltd has turned the multiplex industry into a battleground. Although RML has said that its open offer to buy additional 52.72% stake in Fame has been delayed pending approval from market regulator Securities and Exchange Board of India (SEBI), there are some other aspects that could impact the final outcome of the deal.

One issue relates to the foreign currency convertible bonds (FCCBs) issued by Fame in 2006 and the second issue is the stake owned by some inconspicuous parties, which could turn the balance either towards Inox or RML.

At present, three companies of the Anil Dhirubhai Ambani Group (ADAG)—RML, Reliance Capital Ltd and Reliance Capital Partners—hold a combined 13.79% stake in Fame. Inox holds 50.48% stake in Fame, including the 43.3% share that it had bought from South Yarra Holdings for Rs67 crore. As of end-December 2009, Gulshan Investment Co Ltd (Gulshan) and Shail Investments Pvt Ltd (Shail) held 6.54% and 5.26% stake, respectively, in Fame. On 25 March 2010, Religare Securities Ltd (Religare) increased its stake to 5.82% from 0.7% in Fame. Since Religare is a broker, shares are held in the ordinary course of business towards margin or collateral on behalf of clients.

In April 2006, Fame issued two series of FCCBs, the 12,000 ‘Series A Bonds’ and 8,000 ‘Series B Bonds’, of face value of $1,000 each, aggregating to $20 million. The FCCBs are convertible at any time up to 12 April 2011 at the option of the holders into newly issued shares with a face value of Rs10 per share at an initial conversion price of Rs90 per share for ‘Series A Bonds’ and Rs107 per share for ‘Series B Bonds’.

The only condition before these FCCBs get converted into shares is that the stock price has to be higher that the conversion price. During 2007-08, out of the total $20 million FCCBs issued, about 3,000 ‘Series A Bonds’ and 4,000 ‘Series B Bonds’—together worth $7 million—have already been converted into shares. That leaves FCCBs worth $13 million which are outstanding, which may hold the key to Fame for both RML and Inox.

In case Fame’s share price goes above Rs90 and Rs107, then it will lead to conversion of FCCBs—from both series—into shares and reduce Inox's stake in Fame to 42.67%. Upon conversion, FCCB holders may have around 15.07% stake in Fame. This together with the stake of Gulshan, Shail and Religare will play a crucial role in determining the winner in this race.

ADAG companies are shopping for Fame’s shares through open market deals, thereby increasing the group’s stake to 13.79% as of 8th March from the level of 4.65% before 5th February.

However, even after the FCCB conversion, Inox would hold about 42.67% and thus can easily buy additional 8% stake in Fame from the markets.

With Fame share prices now touching Rs90 and above, purchase of even a single share of Fame will considerably hike the Inox offer price. This may also lead to a situation like that of the Great Offshore Ltd (GOL) takeover battle, where ABG Shipyard Ltd sold its stake in GOL just one day prior to the open offer and made huge profits.

Now, the moot question is, why are both Inox and ADAG fighting for Fame? The answer is simple. Fame owns 95 screens across 12 cities. ADAG wants to consolidate its position as the market leader in number of screens (to 337 screens from 242 screens). Similarly, after the acquisition, the number of screens for Inox would go up to 210 from 115, thus making it the second-largest player in the film-exhibition business.

Apart from the rankings and consolidation, there is another crucial aspect to the acquisition of Fame. The acquisition doesn't just involve the film-exhibition business of Fame, but it brings along Fame's film distribution subsidiary, Shringar Films Ltd, and food courts and restaurant management subsidiary, Big Pictures Hospitality Services Pvt Ltd.

Fame also holds a 50% stake in Headstrong Films Pvt Ltd (a film-production unit) and Swanston Multiplex Cinemas Pvt Ltd (primarily engaged in managing a multiplex in a Mumbai suburb), thus making the acquisition deal a complete package.

With both the parties trying to become market leaders in this business, the battle is bound to heat up in the future. Amidst this scuffle, the debt of over Rs100 crore on Fame's account books seems to have taken a backseat.

On Thursday, Fame India ended 0.06% down at Rs85; Inox surged 5.18% to Rs66.05 and RML shares inched up 1.04% to Rs218.40 on the Bombay Stock Exchange. The BSE 30-share Sensex closed 164.9 points up at 17,692.60 points.

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    12 US institutions interested in Indian tie-ups

    A number of leading American academic institutions are interested in collaboration and research alliances

    With a law on the anvil to allow operation of foreign education providers in India, a top consortium of research institutions from the US has evinced interest in collaborating with Indian universities.

    A delegation of the Committee on Institutional Cooperation (CIC), which represents America's top universities, visited India this week and met HRD minister Kapil Sibal to discuss areas of collaboration and institutional linkages, reports PTI.

    The CIC is a consortium comprising universities of Chicago, Illinois, Indiana, Iowa, Michigan, Michigan State University, Minnesota, North-western, Ohio State, Pennsylvania State, Purdue and Wisconsin-Madison.

    "We have come for discussion on collaboration on research and academic programmes. We are a consortium of research universities and we are together for over 50 years. We do lots of things together and we can collaborate with Indian institutions," said Karen Partlow, associate director, (Technology Collaboration), CIC.

    She said that the delegation was on a fact-finding mission to explore the areas of collaboration. This was the first meeting of the CIC delegation with Mr Sibal.

    "The minister is open to hear specific ideas like what sort of engagement we would like to have in India. We will prepare a detailed plan in this direction and come again," said Ms Partlow, who led the delegation.

    The CIC is known for quality research and its advanced research laboratories. Through collaboration, the CIC members increase teaching, learning and research opportunities.

    These universities conduct funded research of $6.40 billion every year while the funded research of Ivy League universities and the University of California are pegged at $3.27 billion and $4.38 billion respectively.

    “India is interested in institutional linkages between CIC institutions and universities here. This will help Indian universities take advantage of the high-quality research facilities of CIC member institutions,” an HRD ministry official said.
    The CIC universities enrol nearly three lakh under-graduate and 76,000 post-graduate students every year and deliver doctoral programmes in 147 areas of study.

    University of Illinois, a member of CIC, had earlier helped India set up IIT-Kharagpur and the GB Pant University of Agriculture and Technology. The visit of CIC comes at a time when the government is likely to introduce the Foreign Educational Institution (Regulation of Entry and Operation) Bill, 2010, in Parliament this month.

    The Cabinet has approved the Bill which lays down norms for allowing entry and operation of foreign education providers in India. Nearly 50 foreign institutions, including Boston, Yale and Duke University, have evinced interest in either setting up campuses or collaborate on research and academic programmes.

    The CIC delegation also met representatives of Aligarh Muslim University (AMU) and discussed facilitating more research students. The delegation evinced interest in sending students for pursuing studies in Persian, Arabic, Urdu, Hindi and other Indian languages.

    The delegation comprised Wolfgang Schloer from University of Illinois, Will Glover from University of Michigan, Molly Portz from University of Minnesota, Ken Shapiro and Aseem Ansari from University of Wisconsin-Madison, Terry Webb from Madison Area Technical College and Ms Partlow.

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    ‘AI-IA merger could have been better implemented’

    Aviation minister admits that execution of the merger process has not been up to the mark

    Civil aviation minister Praful Patel has suggested that the merger of Air India and Indian Airlines could have been better executed but for "a kind of sabotage from within.”

    Asked about criticism of the merger, he said, "I concede that the merger could have been better executed and implemented. There has been even I would say a kind of sabotage from within. People did not want to see it to be implemented well.”

    “But the basic concept has been going on since the time of JRD Tata. A couple of times well-meaning people had attempted to merge the two as it made business, economic and technical sense,” he said.

    "There are no two opinions about whether the merger was required or not. This was not a knee-jerk reaction. It was well thought-out, well-planned and made immense economic sense," Mr Patel said, reports PTI.
    He said the merger was done after consulting secretaries and committees.

    The minister said that the government took a “conscious decision” based on valid technical inputs. “The intentions were good but maybe the execution has not been up to the mark,” he admitted.

    Mr Patel said that the government as of now intends to run Air India as a State-owned carrier.

    Asked if the government had any intention of privatising or disinvesting Air India, he said, “I cannot speak about policy until some decision is taken by (the) government. As a personal opinion, I can say that most national carriers across the world have not done well.”

    "Considering that, Air India has still come a long, long way and has retained its national carrier status,” he said.

    "Someday, the government may take a different decision. As of today, we intend to run it as a national carrier, as (a) State-owned (airline)," Mr Patel said.

    On the completion of Mumbai airport, Mr Patel said that though the project was 18 months behind the Delhi airport, when it is completed it would match the latter in terms of being “truly world class.”

    "Mumbai and Delhi are not going to be different in terms of standards and state-of-the-art terminals. But Mumbai has a peculiar problem of rehabilitation of a large number of people living in the airport vicinity,” Mr Patel said.

    He said that 20,000 slum-dwellers would be rehabilitated in “permanent, very good” houses just two kilometres from the airport.

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    Shadi Katyal

    1 decade ago

    The ques ion to ask is what would an aviation Minister know about any PSU merger? Does anyone in his Ministry have dealt such merger.
    We are a nation where we keep bumbling around in every field because we do not have a single party who can form a govt and thus in the present situation we give Ministry to anyone of any party. Who cares if the country suffers at least they get a pound of their Flesh.
    Wh7y not expose such criminality acts.Will such marriage survive but one doubts as more funds will be needed to drowned fleet.
    Used to be a Maharaja airline but now worst than a third class compartment.
    It is fear of unions and excessive baggage of manpower which will sink the ship

    P C Choudhury

    1 decade ago

    All teh Minister of Civil Aviation had to do was take the employees on board the nerger process. He has talked to everyone except the employees. The issue of merger was further damamged because he failed to keep his promise that the best practices of the two airlines were adopted and teh employees were taken to a common acceptable platform , the so called "sabotage from within" would never have happened. It is sad that a dynamic entreprenuer like Mr Praful Patel who himself is a business has not thought about it. The govt. and AI management wants to have the cake and eat it by not looking into the employees grievances and resolving them. "sabotage from within is bound to happen when there is heartburn within (COPU report). Mere creation of grievance cells by AI management (as reported in newspapers) will not help.

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