MUMBAI: Tata Group's joint
venture DTH company Tata Sky has initiated talks with bulge bracket private
equity firms to raise up toRs 1,800 crore ($300 million) after shelving its
plans for an initial public offering (IPO). The loss-making venture will use the
capital for its technology upgradation and expansion, said four people with
direct knowledge of the process.In 2013, Tata Sky had planned to list the
venture and raise Rs 2,000 crore by selling 25% stake. It had even shortlisted
investment banks Citigroup Capital Markets, Morgan Stanley India Equities and
Kotak Mahindra Capital Co to manage the issue.
Citi and Morgan Stanley have been
retained but now the mandate is to raise PE funding, a person, who is a part of
the process, said. The company has been bleeding under high debt and slower
sales pick-up, and has revised its valuation expectations after the bankers
didn't get initial demand from global institutional investors."The company
will now tap private equity players who can offer patient capital and can wait
till the company turns profitable,"another person said. "Most of the
global investors such as Bain, Blackstone, Warburg Pincus, TPG and General
Atlantic have been approached."
ET could not independently verify
these names. Confirming that the company has shelved its listing plans, Harit
Nagpal, chief executive officer of Tata Sky in an SMS response said: "All
our cash requirements have been and will continue to be met by existing
shareholders."
Data from Capitaline shows that
in 2013-14, at a standalone basis, the company made a loss of Rs 280.4 crore on
net sales of Rs 3,023.2 crore compared with a net loss of Rs 378.9 crore on
sales of Rs 2,286 crore recorded in the previous fiscal. Finacials for FY15
were not available.In comparison, Dish TV, Asia's largest direct-to-home
service operator, has a market capitalisation ofRs 10,319.56 crore. In FY14-15,
it clocked Rs 2,781.64 crore of revenues and a Rs 796-crore EBITDA and aRs
1.01-crore net profit on a consolidated basis.
Tata Group holds 60% stake in
Tata Sky along with Rupert Murdoch's 21st Century Fox owning around 30% stake.
PE firm Temasek, through its arm Bay Tree Investments and Tata Opportunities
Fund (TOF) holds the residual stake in the company.
TOF was the last to come on board
at an estimated valuation of Rs 5,000 crore, which was almost three times the
value at which Singapore's sovereign wealth fund Temasek invested to pick up a
stake in 2007. Over 10 years, DTH has successfully challenged the might of
cable television with superior quality of broadcasting and a clear
technological edge.
There are an estimated 47 million
DTH customers in India today, which is 36% of the Indian TV households. DTH is
adding about 8.5 million customers a year, four times more than cable
additions. According to Hong Kongbased consultancy Media Partners Asia, 42% of
all TV homes in the world will be on DTH by 2020."With that kind of
potential growth, a lot of global private equity investors will be willing to
back the right candidate,"a senior consultant with a global consultancy
said adding: "However, the high amount of debt and cash burnout continues
to be a worry."
Indian DTH companies have spent
high amount of cash on setting up the infrastructure in the last 12 years since
digistisation was first introduced in 2003. The companies are highly leveraged
as they have been fighting hard from to keep rising prices under control. The
historical losses have been on account of investments in set top boxes."It
is to be seen how the next decade plays out for these companies who have to now
make deeper inroads into the vast rural market,"the consultant added. With
compulsory digitisation in the country and the spur in consumption of mass
media, companies such as Tata Sky and Videocon d2h the satellite television arm
of Videocon Group, had plans to raise capital from the public market.
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