DB Realty deal with Starwood Capital in doldrums

This story first appeared in DNA Money edition on Friday February, 18 2011.

Recent controversies surrounding DB Realty may have forced private equity firm Starwood Capital to junk plans for investing in one of its premier projects.

DB Realty, India’s third-largest realty firm by market capitalisation, was in talks with Starwood Capitalto invest Rs 450 crore for a 10-15% stake in the Government Bandra Colony project.

However, a senior executive affiliated to a private equity firm said Starwood Capital is no longer considering the investment.

“There is no substance whatsoever in Starwood Capital participating in this fundraising exercise by DB Realty. It appears to be a desperate effort by the realtors to attract more investor participation to fund this development,” the executive said.

However, a DB Realty spokesperson maintained the deal is in the works. “Starwood Capital is considering investment in the Bandra Government Colony project and we have signed a non-binding term sheet.”

“Due diligence is in progress and we do not have any information of them backing out of the deal,” the spokesperson added.

Meanwhile, lending credence to talk of the deal falling through, DB Realty has restarted negotiations with other private equity firms.

“We were talking to a few PE funds. However, we now have a couple of domestic investors looking at this project and we should quickly be able to finalise the deal and pay the money to the government,” the spokesperson said.

“We are talking to a domestic private equity fund investor to raise Rs 600-800 crore. The stake sale of 25-30% was a back-up to the Starwood one and we are looking to probably close the deal soon,” another DB Realty official said on condition of anonymity.

DB Realty was first in talks with HDFC India Real Estate Fund (HIREF) to raise Rs 450 crore, but the fund backed out.

“The project at present has 3-3.5 FSI and they have valuated everything based on a FSI of 4 that they think they will get because it is a MMRDA project. But if they don’t get the 4 FSI the project is totally inviable. That’s why we backed out from it,” a senior HIREF official said.

That’s when Starwood Capital entered the picture, albeit offering a lower valuation. The developer had indicated in August 2010 that it would sell 20% stake in the project for Rs 1,200 crore, whereas now it is eager to sell off 25-30% stake for half the amount.

The company has to make a payment of Rs803 crore by the end of February to keep the project in its stable.

An analyst affiliated to a domestic brokerage felt the current market situation is not good enough for projects of this size to command premiums.

“The valuations have come down and their plan to sell at Rs20,000 per square feet is now a concern,” the analyst said.

An email sent last week to Starwood Capital’s officials in the US and to Sundaram V Rajagopal, managing director, Starwood Capital India Advisors Pvt Ltd, remained unanswered.

Last week, it was reported in the stock exchanges that Shahzaad Dalal, an independent director on DB Realty board, had resigned. It is learnt that Dalal, vice-president of IL&FS Investment

Managers, had sent his resignation to the company last year in November and the embattled real estate group kept his resignation in abeyance for three months, underscoring a shaky governance record.

Incidentally, Sundaram V Rajagopal also serves as non-executive non-independent director of DB Realty Ltd. Given the controversies surrounding the realtor, there is concern on whether Rajagopal will remain on the company’s board.

“He is close to the DB Realty promoters and is on their board in his personal capacity,” a source said. “His presence on the board cannot be seen as a representation from Starwood Capital. Now whether he will resign from the board or hold on to the position is something he will have to take a call on. Having said that, I’d presume that being the India head of a globally renowned investment firm, he should probably step down from the realty company’s board on ethical grounds.”

(My DNA Money colleague Pooja Sarkar contributed to this story)

Piracy booms, Indian channels bleed

This story first appeared in DNA main edition on Saturday February 2, 2011.

The popularity of Indian soap operas and television shows in the Asia-Pacific region has turned piracy into a booming industry. Cashing in on the craze for serials from Zee, Sony, Star and other channels, local broadcasters are beaming these illegally into homes in Afghanistan.

Tarun Mehra, territory head, Zee International Business, said the company has been monitoring such illegal practices in some countries in the Asia-Pacific region. This is blatant violation of intellectual property rights (IPR), he added.

“There are some channels who legitimately buy our content to show it on their network. However, evidence gathered by our team has shown that Afghan TV is misusing our content and making financial gains from it,” said Mehra.

The spokesperson for Star TV did not comment on the issue while Sony and Colors could not be reached. Officials from the Afghan embassy in Mumbai did not responded to questions either.

The Afghan TV pirates have a carefully thought out business model. Popular television content is procured by downloading it using a direct-to-home box. This is followed by dubbing the shows in the local language (Pashto) and then beaming it on their network.

Afghan TV, sources said, operates primarily with Indian content. Broadcasters say serious money is being lost in the process.

“Estimating that a 30-minute soap can be sold anywhere between $200 and $400, loss of potential revenue in case of every such soap works to around $100,000 per annum. On a conservative estimate, the overall loss of revenue due to piracy of GEC content for all Indian players can be anything upwards of $2 million,” said Mehra.

Zee has taken up the matter with the Afghan Embassy and will pursue it with industry bodies and the government to regularise this stream.

Losses due to piracy are not restricted to Afghanistan alone. Many other countries blatantly violate Indian entertainment content. Experts said piracy has gained momentum in countries like Thailand, Indonesia, Bangladesh, Pakistan, Sri Lanka and the Middle-East too.

While it wasn’t that big a phenomenon earlier, the practice has picked up significantly in the last few years. Based on Cable & Satellite Broadcasting Association of Asia estimates, broadcasters peg the overall losses from piracy in 2010 to be over Rs9,000 crore.

An annual pay-TV piracy survey of 15 Asia-Pacific markets conducted by the association in 2009 estimated annual revenue loss of $1.94 billion while the annual pay-TV revenue leakage in Asia in 2008 was estimate to be $1.75 billion.

Cox & Kings expects foreign buyouts by June

The story first appeared in DNA Money edition on Wednesday February 09, 2011.

Cox & Kings Ltd, the tour operator, said it’s in the final stages of making more than one acquisition by June this year. Peter Kerkar, executive director, Cox & Kings, said the company is currently in negotiations.

“The advantage for us is that, we are in a position to act fast and conclude the transaction the moment the opportunity is appropriate. We expect to do so within the quarter ending June,” said Kerkar. The buyouts being looked at include in Europe, the UK, the US and China. Funding will largely be done through monies raised by the company in the recent past.

Cox & Kings currently has liquid funds of Rs1,052 crore, earmarked for acquisitions. Of this, approximately Rs640 crore is parked outside India. Anil Khandelwal, chief financial officer, Cox & Kings, said, the large sum is parked outside because there are certain jurisdictions where a serious discussion with an acquisition target cannot be had unless funds are shown as available.

Morgan Stanley analysts Nillai Shah, Hozefa Topiwalla, Girish Achhipalia and Ashwini Kamath in a recent report estimated that Cox & Kings is currently trading at 17 times its next fiscal’s earnings and has close to Rs1,200 crore of cash on its balance sheet. “While the markets seem overlyconcerned about it destroying capital through acquisitions, the company also has a successful track record in creating value from acquisitions, and this cash presents an attractive option value for investors. If it can deploy this cash at even half its current adjusted return on capital employed (RoCE), the returns thereon would double current profits,” the quartet said.

Cox & Kings recently announced its financial results for the third quarter ended December 31, 2010, where net sales rose 37% to Rs108.31 crore compared with Rs78.89 crore earlier. Net profit rose 20% to Rs23.34 crore compared with Rs19.53 crore in the year-ago period. Diluted earnings per share stood at Rs3.52 compared with Rs4.07 in the corresponding period of last fiscal year. “The decrease in earnings per share is due to fresh issue of shares during GDR in August 2010,” said top company official.

Operators, experts laud revised plan for cable TV digitisation

The story first appeared in DNA Money edition on Tuesday February 08, 2011.

The information and broadcasting (I&B) ministry’s revised schedule, for digitisation of cable TV across the country, is seen as a significant development by operators. This move, according to industry experts, is a positive and practical step.

According to analysts Nikhil Vora and Swati Nangalia at IDFC Securities, the I&B ministry’s response to Telecom Regulatory Authority of India’s (Trai) recommendations, is a critical development for digitisation in the country.

“We expect India to reach 86 million digital homes by 2015, as against over 30 million currently. However, the regulatory push towards digitisation could potentially underpin faster growth in the overall industry. The Cabinet approval is the final step for these proposals to get implemented, which is likely to be received in the next three months,” the analysts said in their report

In the next 5-odd years, India is likely to be the second largest digital market in the world, aiding the addressal of the industry’s biggest bane of ‘under-declaration’. This will lead to a significant leap (6.5 times) in the organised industry to $7.7 billion (from the current $1.2 billion). Similarly, the capital requirement of the industry would be pegged at $5 billion.

Some of the leading players in this segment include WWIL, DEN Networks and Hathway Cables. Analysts covering the space envisage over 50% returns on the stocks of these companies from current levels.

The cost of digitisation, largely, requires setting up optical fibre network and supplying set top boxes (STBs) to subscribers.

The key challenge, however, comes from local cable operators (LCOs), who have a vested interest in operating the analogue version and hence are not supportive of the digitisation policy. However, with the policy amendment expected soon, it will be mandatory for LCOs to adopt digitisation, which will improve the overall health of the cable TV industry.

A senior official from a leading cable TV company asserted that digitisation is very crucial for multi-system operators (MSOs), as it will bring in complete transparency as far as subscription numbers are concerned.

“MSOs are losing money on account of under declaration by LCOs. Digitisation will solve this problem to a great extent. Besides, the subscriber will now get better services at very attractive prices, since cable operators will get a level playing field to compete with the direct to home (DTH) players,” said the official requesting not to be identified.

A media and entertainment sector analyst with a domestic equity research firm, speaking on condition of anonymity, said, “The development is positive in the medium term for industry players. LCOs resorting to disclosing just about 10 to 15% of their subscriber base will eventually have to make complete disclosure. However, DTH operators will now have to face inter-segment competition in the metros and Tier I cities, as MSOs will be able to offer comparable services to subscribers. There is a possibility that average revenue per user (ARPU) for DTH operators may come under pressure. However, Tier II and III markets will continue to see growth in DTH subscriber base as MSOs / LCOs may take a while to spread their network there.”

In August 2010, Trai had suggested key recommendations for the Indian cable distribution space, including a sunset date of December 2013 for complete migration.

The ministry’s new rollout schedule in Phase I, suggests the launch of the new format, starting with four metros by March 31, 2012 instead of March 31, 2011, as proposed by Trai. In Phase II, which include cities with population of over 1 million to be covered by March 31, 2013, while the rest of the country is to witness analogue to digital migration by March 31, 2015. Paucity of STBs and related supply issues, in addition to the need for increased investments towards digitisation, were cited as key reasons for deferring Trai’s recommended sunset clause.

MGM Hospitality signs first hotel in India

MGM Hospitality has signed a definitive agreement to operate its first destination hotel in India. The MGM Grand and Skylofts New Delhi will be part of a dynamic multiple-hotel development in the national capital of Delhi.

MGM Grand, Las Vegas

Located a mere 350 meters from National Highway 8, the site has convenient access to the burgeoning business city of Gurgaon, posh South Delhi, the diplomatic enclave, the Central Business District and the new commercial and hospitality district near the New Delhi International Airport.

In partnership with Silver Resort Hotel India Pvt Ltd (a company promoted by Blue Coast Hotels Ltd), MGM Hospitality will provide design assistance and operate this luxury hotel facility under the legendary brand of MGM Grand. The new hotel will feature approximately 480 MGM Grand guest rooms, along with a number of exclusive Skylofts brand suites and serviced apartments.

“This development marks our entry into the burgeoning India marketplace,” said Gamal Aziz, president and CEO of MGM Hospitality. He added “Our brands are known the world over, but being welcomed into a new nation is always exciting, especially one with a hospitality market as dynamic as India’s.”

Groundbreaking on the project is scheduled for March 2011. MGM Grand New Delhi is anticipated to welcome its first guests in early 2014.

MGM Hospitality is a wholly owned subsidiary of MGM Resorts International (NYSE: MGM), that was formed to operate hotels, resorts and residences in key destinations around the world under the brands Bellagio, MGM Grand and Skylofts.

Silver Resort Hotel (I) Pvt Ltd is promoted by Blue Coast Hotels Ltd. The Company has acquired 5.03 acres of land from Delhi International Airport Limited (DIAL) in the hospitality district of the Delhi International Airport. The gross built up area is 7.30 lacs sq. ft. for an upscale luxury hotel with hotel apartments.

Blue Coast also owns the 251 room five-star deluxe luxury resort Park Hyatt Goa Resort & Spa in Goa which is the first and the only ‘Park Hyatt’ in India. The group has handled green field projects from land acquisition to making of the market leaders and has relationships with leading International hotel chains such as Hyatt and Sheraton.