MUMBAI: Regulator Sebi on Tuesday cleared the decks for Vishvapradhan Commercial to make an open offer for NDTV Ltd to indirectly gain control of up to 52 per cent stake through a convertible loan of Rs 350 crore in 2009 'sourced' from a partner company of Reliance Industries Ltd, reported news agency PTI.

Established in 2008, the ownership of 'wholesale trading' firm Vishvapradhan Commercial Private Ltd (VCPL) is believed to have shifted from RIL to Nahara group, from which the Mukesh Ambani-led company had acquired Infotel Broadband to re-enter the telecom business in 2010.

Sebi's order comes after an investigation into an alleged violation of takeover norms by VCPL with regards to the loan with a 10-year period ending July 2019, with multiple clauses giving it control for up to 52 per cent of NDTV, the regulator said.

Sebi has also issued show-cause notices in this case to NDTV's promoters -- Prannoy Roy, his wife Radhika Roy and their holding firm RRPR -- for allegedly failing to disclose the loan agreement with VCPL and partner companies.

While ordering the open offer -- for securing up to 26 per cent shares in NDTV from public shareholders as per Sebi rules -- the regulator noticed that VCPL had -- in a letter on 25 March 2016 -- disclosed that the "source for the loan was the borrowing from Reliance Strategic Investment Limited, a wholly owned subsidiary of Reliance Industries Limited".

Although the regulator's order did not disclose specifics of VCPL's ownership pattern, it observed that the firm had a revenue of only Rs 60,000 in FY2017 and over Rs 400 crore in long-term loans and advances.

Stating that the financial statements offered by VCPL raise questions regarding its motive in signing a loan pact with the NDTV promoters, Sebi said it was obvious that they did "neither have the history of advancing such loans nor do they appear to have had the financial wherewithal to advance loans on such liberal terms".

Sebi said the loan and call option agreements seemed to have been made use of to cover the trail of the transaction which was to acquire beneficial interest in NDTV.

"The elaborate mechanism adopted by the noticee (VCPL) and its associates appear to be solely to deflect attention from this acquisition and thus covetously overcome the obligations imposed by the Takeover Regulations," Sebi said.

Sebi has directed VCPL to make a public offer for NDTV in the next 45 days and also make a payment, along with the offer price, an interest at the rate of 10 per annum to the company's shareholders who held shares on the date of violation.

Sebi, in its 28-page order, stated that the NDTV promoters had made an open offer in 2008, securing a loan of Rs 540 crore from Indiabulls to fund that.

In order to pay off this loan, the company then secured another one to the tune of Rs 375 crore from ICICI Bank, which was repaid in 2009 by borrowing Rs 350 crore from VCPL with an agreement dated July 21, 2009.

Based on the key clauses of the Loan Agreement, Sebi said it was an unsecured loan minus any interest payment.

Sebi also stated that the "is not to secure the loan but to acquire control over all the affairs of the target company leaving only the right to control the editorial policies of NDTV to the promoters and borrowers, right from the day of execution of the loan agreement."

The agreement offered for RRPR handing a warrant to VCPL, convertible into equity shares aggregating to 99.99 per cent of RRPR at the time of conversion at any time during the tenure of the loan or thereafter. This translates to a 26 per cent stake in media company.

VCPL can now buy from promoters all equity shares of RRPR at par value. There were also two call option agreements penned between Subhgami Trading Private Limited and RRPR, and Shyam Equities Private Limited and RRPR, respectively.

This gave a chance to Subhgami Trading and Shyam Equities an option to buy up to 26 per cent stake in NDTV from RRPR. These companies were allies of VCPL's shareholders at the time.

Sebi said the agreements were in line with the strategy selected by VCPL to buy up to 52 per cent of NDTV shares via two modes -- indirect acquisition of convertible warrants of the parent company; and by purchase of a freely exercisable call option to buy 26 per cent shares of NDTV.

According to Sebi this takeover exercise has been masked as a loan agreement with the primary intention of VCPL being able to seize control over NDTV without having to worry about replaying the loan from the promoters or borrowers.

After taking into account all submissions, Sebi stated that VCPL did indirectly seize control in NDTV Ltd, by entering into the loan and call option agreements, therefore allowing it to make an open offer based on takeover rules

According to Sebi, the conversion option permitting VCPL to 99.99 per cent of RRPR shares can be implemented even after the loan amount is settled.

The call option clause does not contain any time limitations and endows VCPL the right to pick up 26 per cent of NDTV at any time with no linkage to the loan.