Network18 Media raised Rs 300 crore (Rs 3 billion) last June through placement of secured optionally fully convertible debentures to five promoter group entities.

These debentures carried a coupon of 10 per cent and were convertible into equity shares at a price of Rs 160.50.
Monday's market price of Network18 was Rs 48.45, less than a third of the conversion price.

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If there is no sufficient appreciation in the share price, the company may have to repay this debt at a coupon of 10 per cent at the end of the year, according to the terms of this placement.

Alternatively, these could be restructured according to mutually agreeable terms, said a banker who specialises in such structures.

In June, Network18 Media & Investments had informed the Bombay Stock Exchange (it had allotted 18.6 million Secured Optionally Fully Convertible Debentures.

RB Media Holdings, Watermark Infratech, Adventure Marketing, Colorful Media and RB holdings were the beneficiaries.

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When the decision of the fund infusion was announced on May 6, the stock was trading close to its one year high of Rs 175.

On the date of the extraordinary general meeting to get approval for the fund infusion, the stock hit a day's high of Rs 160.50.

The stock has seen a 70 per cent erosion since the infusion.

Interestingly, four of these entities did not hold a single equity share in Network18 or TV18 Broadcast, the two listed companies of the group and, hence, do not figure in the latest reported shareholding pattern in the stock exchanges.

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According to the BSE filing, RB Holdings, the main promoter entity, was allotted 6.23 million SOFCDs, other four were allotted 3.11 million each. 

An email questionnaire sent to the Network18 spokesperson on Saturday remained unanswered till the time the report went to the press.

At the end of September, Network18 had a loan book of Rs 1,982 crore (Rs 19.82 billion).

It plans to raise Rs 2,700 crore (Rs 27 billion) each through rights issues to retire existing debt, fund the acquisition of ETV Channels and manage working capital needs. Network18, in turn, would subscribe to Rs 1,400 crore in the TV18 rights issue.

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Debt repayment will vary to the extent of subscription to the rights issues.

In the event of full repayment of debt, the group will save Rs 350 crore (Rs 3.5 billion) towards the interest costs paid annually, improving profitability of these companies.

Analysts say, while debt reduction and operational synergies (revenue and market share gains) are positives of the deal with Reliance, the gains will be offset by huge dilution in both the companies, after the issue.

TV18 would likely see a dilution of 187 per cent after the rights issues, says a Kotak Securities report.