DCHL debt woes: Srei wants to convert debt into equity

Media firm's board authorises discussion with lender on proposed step; also okays preferential issue of equity for prospective investors

Hyderabad-based media company Deccan Chronicle Holdings Ltd (DCHL) on Friday said it had got a notice from Srei Infrastructure for conversion of a part of the latter’s loan dues into equity.

In a filing to the BSE, the DCHL management also said its board of directors at a meeting on Thursday constituted and authorised a sub-committee to begin discussion with Srei in this regard.  

The move to seek conversion of a part of the debt dues into equity comes after an earlier statement of the Kolkata-based Srei group on having initiated legal steps to recover a Rs 220-crore loan to DCHL. The notice did not specify how much of the total loan would be converted into equity.

“We have called upon DCHL to convert such value of the part outstanding amount (due under the loan agreement), into such number of fully paid-up, voting equity shares of DCHL, so that at any time, the said converted shares shall be at least 24 per cent  of the total expanded paid-up equity share capital of the company,” Srei stated.

The firm said to protect its rights and considering the fact that DCHL was a listed company, the company felt it was fair to explore another option for part recovery of the loan. “As a PFI (public financial institution), we had already approached the DRT (Debt Recovery Tribunal) for recovery of our dues,” Srei said, adding DCHL was yet to allot shares.

According to the Securities and Exchange Board of India (Sebi), instruments allotted on a preferential basis to any person, including promoters or the promoter group, shall be locked in for a year from the date of allotment, except for those made on a preferential basis which involves swaps of equity shares or securities convertible into equity shares at a later date for acquisition.

DCHL’s market capitalisation is Rs 78 crore, or a third of the loan amount due to Srei alone. In any case, not more than 20 per cent of the total capital of the company, including capital brought in by way of a preferential issue, would be subject to a lock-in of three years from the date of allotment, according to Sebi norms.

The media company had been dragged to various legal fora in a multitude of loan default cases filed by its lenders after it became clear the company was sitting on at least Rs 4,000 crore of debt early last year.

Going beyond the Srei notice, the DCHL filing said the board had constituted and authorised the board committee to consider and approve an issue and allotment of equity shares on a preferential allotment basis to prospective investors and to take steps, subject to necessary approvals.The DCHL shares touched the upper circuit by rising 17p to Rs 3.74 each on the BSE on Friday, as the statement raised hopes on the company's future.

The DCHL management is also facing an ongoing investigation by the Central Bureau of Investigation for the alleged irregularities in the manner these loans were taken and spent. Canara Bank maintained a forensic audit of the DCHL books did not reflect the full picture of the debt, beside alleging the company management had given falsified documents to lenders.