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Times Private Treaties Under The Spotlight; Portfolio Erosion, Investor Concerns

In a country where it’s not routine for media to report on other media houses (with rare and honourable exceptions), the Private Treaties programme of Bennett, Coleman & Co. Ltd, publisher of The Times of India, was the subject of two stories in leading national dailies this morning. While Business Standard focussed on the erosion in value of BCCL’s PT portfolio, a DNA story raises broader concerns and quotes a number of named and unnamed stock market players, some of whom urge the intervention of capital markets regulator the Securities and Exchange Board of India (Sebi) into the practice.

Private Treaties, a concept pioneered by BCCL and followed by other media houses such as Hindustan Times and the Bhaskar Group, is an investment programme through which a media house picks up equity in a company in exchange for ads. In other versions of the concept, ads are exchanged for products, such as cars or apartments, in what has come to be known as a ‘barter deal’. The ads-for-equities version is more controversial because of the obvious conflict of interests when a newspaper is reporting about a company in which its publisher has financial interests in. Media houses such as BCCL usually defend private treaties saying it doesn’t influence editorial coverage.

According to the BS story, the value of listed holdings in BCCL’s PT portfolio, has declined 50%. The story quotes Private Treaties CEO S. Sivakumar, as saying that the entire portfolio (including unlisted holdings) is down by 40% in value. BCCL has trimmed the PT division to 100 people, from 140, the story says.

The story in DNA Money focuses more on the rising concern among investors and market players about media houses’ practices such as Private Treaties, in the wake of the recent Sebi report on the Pyramid Saimira scam. Promoters of Pyramid Saimira Theatre Ltd were found to have forged a Sebi letter to fraudulently drive up the scrip.

The interim order by the market regulator found that Rajesh Unnikrishnan, an assistant editor with The Economic Times, “also appears to have facilitated the publication in the media of the forged letter…”. At the end of a detailed investigation that has come in for widespread praise from several corners, the report, signed by Sebi member K.M. Abraham, had come to the following conclusion: “In view of the above, I have no hesitation in concluding that Shri Nirmal Kotecha, Shri Rakesh Sharma and Shri Rajesh Unnikrishnan, have jointly played a key role in an arrangement contrived to defraud investors in the market, and derive illegal profits thereof.”

Nirmal Kotecha, a promoter of Pyramid Saimira, was found to have benefitted from a forged Sebi letter asking the promoters to make an open offer, in a successful ploy to fraudulently drive up the scrip. Rakesh Sharma, an employee of the public relations firm Ad Factors, was found to have helped Kotecha publish the news of the open offer in the media, based on the forged letter. Pyramid Saimira is a private treaties client of BCCL, and Ad Factors, a joint venture partner in Tatva Public Relations, a PR firm. BCCL owns 33% in Tatva and Ad Factors owns the rest, according to reports in the media.

The DNA story quotes several named and unnamed market players calling for Sebi intervention to bring in complete transparency and mandatory disclosures of interest along with every story where an investee company is involved. Former Sebi chairman M. Damodaran whipped up a storm when he spoke out against “anchor-investors”, referring to experts who offer stock advice on TV, many of whom have interests in the scrips they are commenting on, but do not say so.

With ethical lines critical to the practice of journalism blurring with each new innovative service being offered by media houses to advertisers, on whom they are almost entirely dependent, media will have a weak defence–even if only a section is guilty–when the government or a regulator steps in to curb its freedoms.

Interestingly, BCCL, which is shortly expected to launch business channel ET Now, has taken down the industry-wide portfolio from the Private Treaties website. The Google cache shows the list was available as on 6 May, but the link is now broken.

5 Responses to “Times Private Treaties Under The Spotlight; Portfolio Erosion, Investor Concerns”

  1. sane man

    Surprising how top management has allowed to plunder precious resources so easily. >50% of the companies are below investment grade and not worth investing. For proof check how many Mutual Funds own these stocks?

  2. Current BCCL PT structure has changed quite considerably.

    In the current structure, investee companies need to pay 50% of ads in cash and the remaining half will be funded by BCCL.

    This is apparently due to misuse of the ad inventory which the investee cos got through the funding.

  3. Sukumar Muralidharan

    Great piece of research on commercial strategies followed by the media. Let us debate these issues without ever resembling a witch-hunt. When Jon Stewart on the Daily Show baked Jim Cramer, the CNBC host, for all his seriously askew predictions of how the markets would go — and actually got Cramer, who till then was a cocksure financial markets guy, to cringe in self-deprecation — the CNBC chief executive presented himself before the TV cameras to denounce Stewart as "seriously out of line" and to praise his news anchors' for their contribution to journalism.

    We would seriously like to see the Bennett Coleman and Co Ltd (BCCL) top guys presenting themselves before the news cameras to argue the case for private treaties. We would like to see them displaying the same chutzpah as the CNBC boss and arguing that: far from polluting the environment for small investors who venture into the stockmarket with great hesitation, "private treaties" really enrich them. That is what we would like to hear them say. Except they should say it themselves and not field some proxy to make this losing case….

  4. Private treaties is bound to reduce the credibility of the content of the newspapers. The readers treat the content of the newspaper as reality and Private treaties will lead to breach of trust of the readers by the newspapers. However almost all the newspaper have been following this since long time. Even in the country & state elections newspapers where used as a marketing media by the respective parties who owned or had PT's with the newspapers.