Global private equity firm Providence Equity Partners invested Rs 241 crore ($36.4 million) to buy additional stake in the country's top television cable distributor Hathway Cable & Datacom Ltd on Friday. The PE firm that focuses on telecom, media and technology businesses, bought stake from Macquarie Bank, an existing shareholder of the public listed firm.
It bought 6.35 per cent stake to take its total holding to 17.2 per cent, as per VCCircle estimates.
Macquarie held 9.42 per cent stake in Hathway as of September 30, 2015 and with this transaction sold over two-thirds of it.
The move comes just days after the government announced major reforms easing foreign direct investment (FDI) norms in several key sectors, including media and broadcasting.
It allowed 100 per cent FDI in several media distribution platforms, including cable networks from the existing 74 per cent. Foreigners can buy as much as 49 per cent without approval from the government while international investors can buy more after a green signal from the authorities.
Hathway is the largest cable operator by revenues and market cap ahead of its nearest peer Den Networks besides Siti Cable, among others.
In August, RBI had removed restrictions on the company to access more foreign capital. Soon thereafter the firm saw its foreign portfolio investment holding shoot up. Its FII holding rose from 14.54 per cent as of June 30 to 39.7 per cent as of September 30.
Promoters own 43.48 per cent stake in the firm.
Providence had originally bought 9.9 per cent stake in Hathway by acquiring its stake from News Corp. News Corp had sold its entire 17.3 per cent stake in the cable operator to Providence and Australia's Macquarie Bank, for Rs 358 crore or around $72 million then.
News Corp, the parent of this news site, is controlled by Rupert Murdoch. Murdoch also controls media and entertainment firm 21stCentury Fox, which runs Star Group. Last year, Star had also sold its 50 per cent stake in STAR CJ Network India Pvt Ltd, a home shopping joint venture it had formed with South Korean home shopping major CJ O Shopping Co Ltd, to Providence. The venture had rebranded the operations later as Shop CJ.
Providence had initially invested Rs 205 crore to buy News Corp's stake in Hathway back then, with Macquarie picking 7.4 per cent for Rs 153 crore. This made Providence the largest shareholder after the promoter group led by Rajan Raheja.
Earlier investors of Hathway included ChrysCap and Morgan Stanley Principal Investments. ChrysCapital, which held a 13.3 per cent stake before Hathway's IPO in 2010, exited the firm during same year with modest 26-27 per cent gain. Morgan Stanley unit had also exited the cable operator, at a loss.
In 2013, Providence increased its holding in the company by investing Rs 110 crore more through a preferential allotment in which the promoters of the company committed Rs 40 crore to buy fresh shares of the firm.
With the latest investment it has committed around Rs 556 crore in the company to date. Its current stake is now valued at Rs 675 crore.
Macquarie is estimated to have churned out 57.4 per cent returns on its three-year-old investment in Hathway in the part-exit.
The phased digitalisation of cable distribution business that promised to add more paying subscribers under its network had lured other institutional investors in Hathway. It had raised Rs 100 crore from a few FIIs besides Rs 300 crore from Capital Group and Rs 150 crore from CLSA Global.
The company has grown its revenues 61 per cent between FY13 and FY15 but it swung into loss of Rs 180.4 crore from a profit of Rs 15.7 crore in the same period.
Cable operators have benefited with more subscribers due to mandatory digitalisation but most of the large cable operators or multi-system operators (MSOs) have struggled to generate profits. This is partly to do with rising cost of carrying content not matching up with full and proper billing from the local operators who have associated themselves with the MSOs. Many legacy local cable operators do not pass on the money the cable subscriber shells out to the MSOs. The under-reporting by the local operators have put a hole in MSOs’ pockets.
Hathway, that also offer broadband service through the same cable lines snaking through its subscribers’ homes, had last month said it would transfer its broadband business to its subsidiary Hathway Broadband.
Although it did not publicly say so, such moves are typically associated with separate fundraising plans.