ICICI loan to NDTV promoters allowed prepayment without penalty

Other terms of loan under CBI lens include lien on shares, payments linked to market cap

A clause that enabled voluntary prepayment without penalty, a lien on over 60 per cent shares of the listed entity and closure terms linked to future market capitalisation are some key features of the loan agreement between ICICI Bank and RRPR Holdings, a promoter company of broadcaster New Delhi Television (NDTV).

The ~350-crore loan facility, extended in 2008 by the country’s largest private lender to the company, controlled by senior journalists Prannoy Roy and Radhika Roy, has become the subject of a Central Bureau of Investigation (CBI) probe. It is alleged that the prepayment and reset of interest rate to less than 10 per cent from 19 per cent caused a loss of ~48 crore to ICICI Bank.

Based on a complaint from Quantum Securities, a minority shareholder of NDTV, the federal agency had initiated a probe in June and raided the Roys' premises. After a move by NDTV and RRPR Holdings to quash the First Information Report (FIR), the high court here had directed CBI to give a status report by September 21.

On Thursday, the CBI did so in a sealed cover, citing the issue's sensitivity. While the petitioners pressed for arguments to continue, CBI's counsel demanded that as a notice had not been issued, the petition could not be considered as admitted. The court posted the matter for November 1.

An ICICI Bank spokesperson did not want to answer questions on the terms in the loan agreements and their legal implications. In their petitions, RRPR and NDTV have argued that the FIR and the search conducted in pursuance of the FIR did not follow due procedure. And, were “clearly malafide and an attempt to attack the freedom of speech”. The RRPR petition said, “Even otherwise, the FIR on the face of it does not make out the offences either under Section 420 (of the penal code, dealing with cheating or 13(1) (d) of the Prevention of Corruption Act and/or any other offences and is, therefore, liable to be quashed.”

The loan agreement and related documents date back to October 2008, when the world had slumped into a financial crisis. These and the prepayment agreement of August 6, 2009, have been filed with the court as part of these petitions.

According to these documents, reviewed by Business Standard, clause 2.9 provided for “voluntary prepayment”. However, unlike many loan agreements, it did not carry any prepayment penalty. Sources familiar with the way the banking sector operates, however, said such arrangements have been made available to other clients. Elsewhere, the credit agreement letter provided that, “Guarantee from the promoters shall be supported by a non-disposal undertaking for its shareholding in NDTV Ltd ( 34,873,038 shares), subject to applicable laws, and RRPR shall also provide a non-disposal undertaking (NDUs) for its shareholding (4,741,721 shares).” These shares amount to 61 per cent stake in the broadcaster.

As the name suggests, such NDUs restricted the owners from selling or other encumbering these, and allowed the lenders to authorise a person to deal with the shares in the event of a default. After the Satyam Computer scandal in February 2009, the Securities and Exchange Board of India had made it mandatory for listed companies to disclose all pledges, including such NDUs.

Also, according to the Reserve Bank's master circular on ‘Loans and advances -- statutory and other restrictions’, banks are required to ensure that “advances against shares are not used to enable the borrower to acquire or retain a controlling interest in the company/or companies or to facilitate or retain inter corporate investments”.

However, say sources, in a refinancing arrangement, such restrictions did not apply. Yet, the Indiabulls loan, which preceded the arrangement with ICICI, had different terms; it was cheaper at 18 per cent and came with less collateral.

The holding of 29.18 per cent NDTV shares was among the primary functions of thinly capitalised RRPR, neither listed or rated. On July 27, 2009, RRPR wrote to ICICI Bank, requesting “reduction in the rate of applicable interest to 9.659 per cent per annum with retrospective effect from October 14, 2008, and also requested to be allowed to prepay the balance of the amounts outstanding”.

In comparison, 10-year subordinate bonds issued by ICICI Home Finance Company, rated AAA (so) by CARE, in April 2009 carried a coupon of 9.75 per cent. The bank itself raised funds through issue of 15-year Tier-II bonds, rated AAA, in August at a coupon of 8.92 per cent. Term sheets of these issues are available on the bank’s website.

Sources said due to a funding freeze in October 2008, treasury bill rates had fallen to around four per cent. In this scenario, as NDTV was operationally profitable, the loan at 19 per cent yearly made sense. However, two quarters later, the broadcaster had become negative on operating earnings.

A few days before requesting for foreclosure of the ICICI loan, RRPR had inked a loan agreement for ~403.85 crore with Vishvapradhan Commercial (VCPL), which is under a regulatory probe for alleged change of control. Funds from the VCPL structure were then used to repay the ICICI Bank loan.

By the terms of prepayment agreed with ICICI in August 2009, in addition to the settlement amount of ~345 crore, RRPR had agreed to pay sums of ~10 crore and ~5 crore, once the market capitalisation of NDTV touched ~2,000 crore and ~2,500 crore, respectively.

Alleging that the complainant had presented the facts and documents selectively, RRPR told the high court, “The complainant having been a consultant of NDTV Ltd in the past … has deliberately not chosen to file the credit agreement letter dated 13.10.2008, the loan agreement with ICICI Bank dated 14.10.2008, as well as the prepayment agreement dated 06.08.2009, which is annexed…”

Arguing that the CBI raid on the Roys’ residence was mala fide, RRPR said, “Apart from NDTV and its promoters, no other names have been mentioned in the FIR, even though the FIR itself includes a document with the name of an ICICI official, which is only indicative of malafides of the respondents.”

The ~350-crore loan facility, extended in 2008 by ICICI Bank to NDTV has become the subject of a Central Bureau of Investigation probe