Hathway IPO plagued by debt, losses, conflict of interest and court cases   

February 8, 2010

 Cable TV provider Hathway Cable and Datacom Ltd (Hathway) is planning to raise Rs500 crore from the capital market and its initial public offering (IPO) is opening on Tuesday. While due to prevailing market conditions, the retail investor may ignore the IPO, there are some serious issues—including conflict of interest between the company and its subsidiaries, and pending court cases.

Hathway, incorporated in 1995, is a cable television service provider which offers analogue and digital cable television services across 125 cities and towns and high-speed cable broadband services across 18 cities.

According to the draft red herring prospectus filed by the company with the Securities and Exchange Board of India (SEBI), Hathway’s promoters also hold about 18% stake in its direct competitor in the cable TV business, Asianet Satellite Communications Ltd. Besides, non-executive directors on the board of Hathway, Rajan Raheja and Vinayak Aggarwal, are also directors on the Asianet board. Mr Raheja holds 4.5% paid-up equity capital of Asianet while his affiliates hold 77.5%.

Hathway’s non-executive director, Uday Shankar, is a board member of DTH services provider Tata Sky Ltd, also a direct competitor of the company. This may create a conflict of interest.

“The company (Hathway) has not entered into any arrangement to mitigate the conflict of interest. Therefore, there may be conflicts of interest in addressing business opportunities and strategies where other companies in which Hathway’s promoters or its directors have interests are also involved,” its filing to SEBI said.

A total of 20 civil proceedings have been filed against the company, 15 against its subsidiaries, and two against its group companies. The company also has 29 tax proceedings filed against it, eight against its subsidiaries, one against its director-promoter, and eight against its group companies.

Out of the 23 criminal cases, seven criminal cases are pending against the company, seven against its subsidiaries while nine are against its promoters.

Sun TV Network Ltd had filed criminal complaints against the company and its officers for copyright violations. ESPN Software (I) Pvt Ltd (ESPN) has also lodged a first information report (FIR) in the Janakpuri Police Station at New Delhi against Surinder Dhupal for exhibiting and transmitting signals from ESPN without proper authorisation from it.

The company has consistently incurred net losses of Rs62 crore, Rs67 crore and Rs63 crore during FY07, FY08, and FY09, respectively. These losses were primarily due to depreciation and amortisation, including purchase of set-top boxes, said the red herring prospectus. As of September 30, 2009, it reported a debt of Rs458 crore on a standalone basis and Rs499 crore on a consolidated basis.

As per the red herring prospectus, Hathway wants to use the funds for customer acquisitions, capital expenditure, investment in broadband infrastructure, repayment of loans and general corporate purposes. However, the company has not entered into any definitive agreements to use the proceeds of the issue.

The issue opens on 9th February and will close on 11th February with equity shares of 2.77 crore shares at a price band of Rs240 to Rs265 a share. The managers for the issue are Kotak Mahindra Capital Co Ltd, Morgan Stanley India Co Pvt Ltd and UBS Securities India Pvt Ltd.
— Ravi Samalad