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 31^st 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.