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Sambhar Mafia - Cooked To Kill!

Friday, February 16, 2007

Flying High with Public Money

Not so long ago, Sun TV tapped the equity market and the issue received an overwhelming response. The IPO catapulted Kalanidhi Maran into the Forbes Billionaires list as he owns about 90% of the listed entity. At the time of the IPO, Sun TV had declared that they are planning to raise Rs. 700 – 800 crores. The objective of the IPO was explained in the Red Herring Prospectus.

The issue proceeds will be used to beef up Sun's subsidiaries, launch more TV channels, construct its own corporate office, set up studio facilities and up-linking infrastructure, purchase new equipment and upgrade the existing ones.

Sun TV estimates that its plan to launch three regional channels would entail an investment of Rs 113.68 crore; the new office and studio facilities would need Rs 62.3 crore and the new equipment/up-gradation would cost Rs 31.26 crore. [Link]

When I read the news about the acquisition of a corporate jet by Kalanidhi Maran, I was under the impression that he is buying the aircrafts in his personal capacity. However, it has come to light that the aircraft is being bought by Sun TV Limited and will be used by Sun TV’s top management for business purposes.

Regional broadcaster Sun TV will join the elite club of corporates, which own private jets, when it imports two Bombardier aircraft at a cost of Rs 236.94 crore to fly senior executives and directors.

The company, promoted by Communication Minister Dayanidhi Maran's brother Kalanithi Maran, would join the select club of corporates who own private jets. [Link]

During the IPO, the management had given investment plans for about Rs. 200 crores. Now, they are going to spend Rs. 237 crores towards purchase of corporate jets. From a cursory glance, it shows that the aircraft investment plan was not mentioned in the Red Herring Prospectus. Sun TV can always take refuge under the fact that their board approved this investment and it is purely for business purposes. From an investor’s perspective, one would definitely feel cheated if a company raises public funds and channelizes that to fund aircraft purchase for its senior management. For a business empire which is largely focussed on South India, one wonders whether it is worth spending more than one year’s profit (Profit After Tax for year ending 31st Mar 2006 stood at Rs. 130 Crores) on private jets. If there is a genuine need to acquire such aircraft, they should have mentioned the same in the offer document. The prospectus is anyway up for public scrutiny and the investing public can decide whether it is really worth investing in such a company.

Given the political clout the family commands, don’t expect the business press to raise such issues in the public domain.

18 Comments:

  • pretty brave of u to put this up. i would be expecting anonymous threats if i were u.

    nandhu
    phoenixflicks.blogspot.com

    By Anonymous Anonymous, at 4:33 AM  

  • You've raised some good points here. Perhaps the larger question needs to be answered than SUNTV. The lack of proper oversight by the companies board will create huge problems in India. Most companies are run like family owned business even through they are truly public companies. We also need stricter over-sight by the government. Sometimes, I wonder how many companies are misreporting earnings and are getting away because of poor corporate governance.

    By Blogger Eshwar S, at 8:25 AM  

  • Hey Kaps

    Is there authentic proof that the money out of these equities were raised to buy the Aircraft? Or was it just a Business Expense?

    In a lighter vein, what do they mean by the top guns of Sun Network? Do they mean Nirmala Periyasami, that menace Ananda Kannan, Radaan Radhika by that? Not that they are top guns, they are top duds!!!

    By Blogger Anusha Parthasarathy, at 10:16 AM  

  • >> If there is a genuine need to acquire such aircraft, they should have mentioned the same in the offer document

    They need not do it. Red Herring Prospectus is just a guideline document and not a binding one. As long as the board okays any business expense it is legitimate and legal. There is no need for shareholder democracy in majority stake companies like sun tv. Since maran owns 90 odd percent he can do pretty much as he likes as long as he has the company board behind him.

    >>Given the political clout the family commands, don’t expect the business press to raise such issues in the public domain.

    This is a non-issue. Such issues where management apparently spends money on itself are never mentioned anywhere in the press unless the company goes kaputt or posts losses. Even in America and other countries where usually the majority of the company is owned by the public (as opposed to the measly 10 or 20 % public ownership in india) these issues are raised only if the company fails to make money.

    By Anonymous Anonymous, at 11:05 PM  

  • Well Done Kaps . That was a real good post. Hope that the powers in Delhi dont read it, or else they could propose to ban blogging too. The present ruling dispensation at Delhi (UPA) has great love towards banning things.

    Anyway it has been rumoured that SUN TV group wants to diversify into Airlines business... Has this something to do with that? Not necessarily. Rather it may come handy for the group when they face the next elections (in 2009).


    As you rightly pointed out, the bigger issue is that none of the TN's Media will report on this development . Will Vikatan Kasu (their financial magazine in Tamil) Dare to put all these things in their print? They will write pages and pages about TamilNadu Mercantile Bank and its alleged problems !! Will Hindu/BusinessLine/Frontline report on this development?

    By Blogger ramki830, at 2:03 AM  

  • First of all, en entity like sun TV which has so much political involvement is obviously a shady entity and you definitely cannot expect it to be honest and transparent espescially given the background of its promoters. Next, the profit obtained by sun TV is probably largely due to the MSO operations of SCV which has forcibly imposed a monopoly over most of TN with pure muscle power and nothing else. Thirdly, the political clout held by the family at the centre also ensures that outside TN, even if other channels are not available, Sun TV is definitely available and in most cases is the only channel available ensures that most advertisers pay a premium for sun TV which further boosts the profits of the entity. ultimately, sun tv is at the top not exactly because of its contents, but because of restrictions on other channels and a company which has relied on anti competitive practices to stay at the top cannot be expected to be honest or transparent.

    By Blogger redrajesh, at 11:24 AM  

  • who cares abt wat they do ...investors get profit .....

    By Anonymous Anonymous, at 12:28 AM  

  • Hi Kaps,

    Yeah...Looks like it is a non issue to me. As long as Maran as the 90% shareholder of the company decides to do what he feels best for the company(obviously with the board's backing) it shouldnt be a problem. and red herring prospectus angle does not bring any credibility to the argument as as someone pointed out it is a broad guideline document. Any private shareholder investor who has invested in the company should be comfortable with the fact that 90% shareholder of the company can make the decision deemed to be in company's best interests . SEBI would step in only if there is large scale swindling and the company is into losses(directly affecting the shareholders..even that is not a factor for equity investment) while the top bosses enjoying huge favors

    By Anonymous krishnan, at 2:17 PM  

  • Kaps

    Let them enjoy at public expense. After all their programs keep many at home while they could be outside creating trouble

    By Anonymous Slitter Sarasa, at 3:48 AM  

  • Bravo, you have the guts required to report such an item against such a powerful team(You should believe when I say that I am not mentioning about the team which was action during the corporation election).
    But what else can you Expect from the people who dont even have the basic ethics (Maran is the Commuication minister when his family is running SUN TV and T.R.Balu is the minister of the minsitry which control shipping and he owns a shipping company)
    Long Live SUN TV and SCV's Monopoly.

    By Anonymous Sriram, Boston, USA, at 12:16 PM  

  • Red Herring Prospectus is just a guideline document and not a binding one. As long as the board okays any business expense it is legitimate and legal. There is no need for shareholder democracy in majority stake companies like sun tv. Since maran owns 90 odd percent he can do pretty much as he likes as long as he has the company board behind him.

    By Anonymous raghu ram prasad, at 12:05 AM  

  • It is wrong to blame some one without knowing the exact truth, first of all there is no evidence to prove that the aircraft is bought out of the funds raised from IPO, it can be from their own reserve (Which I read is 250 crores plus), it can be by way of wet lease, dry lease or by way of loan, to assume that it is out of IPO funds is wrong,

    Secondly from what I know, capital expenses are made for future business plans and not based on past profits.

    Kaps it is not right to state that Sun group only operates in south India , Sun’s prospectus and News items have appeared stating that they won 50 plus FM radio station through out the country, right from Assam to Tirunelveli infact there was a story which stated that Sun’s FM station in Jaipur is doing pretty well and they do have offices and operations in the UK (suntv UK), USA and Australia from what I have read in the web.

    Even in your previous story you had stated that traditional south Indian Business men do not have aircraft which again is totally wrong, I know for sure that Mr. Venu srinivasan of TVS motors has 2 aircrafts, Ramco cements has 1 aircraft, TVS madurai has 1 aircraft and former BPL Rajiv Chandrasekar has 2 Aircrafts to name a few.

    I know from your previous articles that you cannot stand suntv or kalanithi and I am sure you will agree with me that you should verify and state the facts or else their will be no difference between your story and that of Murasoli or Namathu MGR.
    This is only my humble suggestion.

    By Anonymous latha, at 7:45 PM  

  • So where did Sun TV get its source/seed money to start. Sick robbers ....

    By Anonymous Anonymous, at 11:24 AM  

  • In September I would have speculated that MS would not be treating a first-tier Orange County equity investment like Blackstone this way. But as the Fall has progressed and the potential liability increased it is clear that banks are willing to risk even their largest clients to wriggle away from some of these deals.

    By Anonymous ilanit, at 3:35 PM  

  • Banks are falling over themselves to lend money, at ultra-low interest rates and with no strings attached. And the private equity firms do not even need to have a good credit rating. They secure the debt they borrow on the assets of the companies they buy. With pre-determined debt interest costs, any increase in profits from reducing staff numbers, for example, goes straight to the Orange County business investors.

    By Anonymous ilanit, at 6:22 PM  

  • Interesting to know whats going on around. This is not done. I am holding shares of sun tv since its listing. They are making good use of my money.. ;) lol

    By Anonymous Sun TV shareholder, at 7:23 PM  

  • Sun TV is quoting at 253.55, down by 11% today. Have they really bought the plane?

    On a serious note, a commendable article generating such interesting discussion. Keep Good job done, cheers

    By Anonymous Sankalp, at 7:36 PM  

  • By Anonymous Anonymous, at 4:59 PM  

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