Nimesh Kampani invests 1200 crores in Ushodaya Enterprises Ltd. Finance Minister okays smaller Blackstone investment Rs 600 crore (about US$150 million)

Finance Minister, P. Chidambaram finally signed off on the downsized 600 crore (US$150 million) long over due Blackstone- Ushodaya deal on 14 February 2008, with a provision that the money will not be used by Ushodaya to pay back Margadasi Financiers as reported by the mint. The Foreign Investment Promotion Board (FIPB)  approved the Blackstone Group’s downward revised foreign direct investment proposal on 15 January 2008 which has since been waiting for approval from the Finance Minister.

The US based private equity fund Blackstone’s proposal to invest US$275 million in Ushodaya, was stalled, as the government did not approve the deal due to various political pressures. Blackstone had last month resubmitted a fresh proposal to invest about half of its original proposed amount which was about Rs 600 crores (about US$150 million) . The reduction in Blackstone’s equity investment had made it unnecessary for Ushodaya to apply for government approval of the deal from the cabinet committee on Economic Affairs. However the Finance Ministry’s approval has come about only after Ushodaya raised mone from Nimesh Kampani on February 2 2008.

Thus Ushodaya was no longer dependent on the Blackstone deal. Nimesh Kampani, Non Executive Chairman of JM Financial Ltd a publicly traded integrated financial services group, was believed to have invested about Rs 1,200 crore in an undisclosed and flexible mixture of equity and debt in Ushodaya Enterprises Ltd. This investment in Ushodaya was through his newly floated company (owned by the Kampanis) Equator Trading Services Pvt Ltd, apparently created for the Ushodaya Investment and the financial press speculates that Nimesh Kampani might not hold on to the investment. It is also unclear how much stake Equator has picked up in Ushodaya. The investment was believed to be purely financial by the Kampanis’ privately owned firm.

Blackstone announced its decision to invest in the leading media group, Ushodaya in January 2007. With this investment of US $275 million, the private equity major was to acquire 26 per cent in Ushodaya. This was meant to be the largest private equity deal in the Indian media sector. Ramoji Rao, chairman of UEL, had said at the time, “The Company had access to several financing options, including an IPO, but we decided to go with Blackstone because we believe that at this stage of our growth, we have an opportunity to create significant value by leveraging Blackstone’s experience and track record in the global media sector.” Eenadu has a 1.1million circulation and a readership of 13 million.Other than Eenadu, Ushodaya owns 11 vernacular language television channels in Marathi, Bangla, Oriya, Telugu, Kannada, Gujarati, and Urdu. Ushodaya also owns Priya brand of pickles and the group also ostensibly owns and operates the Film City studios on the outskirts of Hyderabad.

Over the past year, the Union Government did not approve the 26 per cent divestment to Blackstone due to various political pressures and business rivalries particularly with the Congress party chief minister of Andhra Pradesh, YS Rajasekhara Reddy, who also has significant clout at the center. Rao’s business conglomerate, owned by him and his family, includes Margadarsi Financiers, a company that collects public deposits and which has run into regulatory and legal difficulties (that are allegedly politically motivated) and has been asked by the government to not only not accept new deposits but also to return all outstanding deposits. The controversy over the past year has been that Ushodaya would use Blackstone’s invested cash to return these deposit rather than in the newspaper business. Apparently the  downsized deal has been approved with the understanding that the funds cannot be used to return the deposits.

Aruna Kumar Vundavalli, the Congress party’s Lok Sabha MP from Rajahmundry, in Andhra Pradesh, has been waging a year-long campaign at various government departments including the finance ministry, to block the Blackstone-Ushodaya deal. He has again recently said he will oppose approval of the slimmed down divestment to Blackstone by the Finance ministry. In the meanwhile YS Rajasekhara Reddy’s son YS Jagmohan Reddy is getting ready to launch his new Telugu daily Sakshi from 19 centres, claiming a rather incredible initial print run of 1.1 million copies. The likely launch date of the newspaper is 29 February 2008.