IndustrySpeak: Indian OOH players feel the ripples of Lehman Brothers` bankruptcy

When the 158-year-old investment bank Lehman Brothers filed for bankruptcy on Monday, September 15, it sent ripples around the world triggering stock market crashes. The move has wiped off over Rs 2,000 crore from market valuation of those Indian companies in which the US financial major had made equity investments. Lehman Brothers has invested in India's OOH sector too.

According to an industry source, Lehman Brothers doesn't have large holdings in India in terms of proprietary book, which is believed to be around $ 100 million.

In recent times, private equity players such as Warburg Pincus, Lehman Brothers, Goldman Sachs, ICICI Ventures and UTI Ventures have made private equity investments worth Rs 600 crore in leading OOH companies such as Laqshya OOH, Times Innovative Media Ltd (TIM) and Serve & Volley. As a result, the OOH industry is expected to cross the Rs 1,700-crore mark in 2008.

It may be recalled that in January this year, Lehman Brothers and Goldman Sachs had picked up a 20 per cent stake in TIM. However, TIM officials were not available for comments at the time of filing this report.

The other OOH players that exchange4media spoke to had mixed reactions as to the repercussions of the bankruptcy. While some raised the caution bar, others felt that Lehman Brothers' exit would hardly affect the industry.

Soumitra Bhattacharyya, CEO, Lashya Outdoor, said that though it was a sad news, "it does not affect us in any way. It would be a waste of time for Laqshya (or any OOH company) to make advance plans to stave off bankruptcy to any of its investor because it is something that is totally irrelevant. Laqshya today is focused on growing its business, and I guess, as we grow our business and become stronger, we also become more and more capable of handling any shocks that might come from any front. That is the basis of any business, including ours."

"I don't think that the Lehman Brothers move will trigger negative thoughts in the industry, as the only way that Lehman Brothers could contribute to our industry was by way of funding, and since this industry is already operating without too much of funding, there is no need for anyone to press any panic buttons at all. It is just that one more potential investor is not there now, but there would be a lot many others, provided the fundamentals of this industry and the company to be invested in both remain strong," Bhattacharyya added.

In contrast, Mangesh Borse, Director, Symbiosis Advertising, said, "The news of Lehman Brothers' bankruptcy has definitely put a hold on my plans to partner any foreign equity player as there are many factors that are beyond one's control in a foreign company. Looking forward, if at all I would go for private equity investment, I would prefer an India company then a foreign one."

BS Sujay, Director, Sujay Advertising, said, "The 158-year-old Lehman Brothers filing for bankruptcy gives food for thought to the Indian outdoor media owners for the future. Earlier, it was the private equity firms who used to go into the details of a company that they wanted to invest in, but after this development, I think it is time for us media owners to evaluate and have a sound understanding of the company with whom they sign the memorandum of understanding."

Meanwhile, in a major selling spree that began on August 21, Lehman Brothers sold its shares worth Rs 400 crore in nearly 10 companies, and one of them was NIIT. Kapil Saurabh, Manager-Investment Relations, NIIT, in an official communiqué, clarified that Lehman Brothers' selling off its share of the participatory note (P-note) did not affect the core functioning of the company. He added, "Lehman Brothers had investment as a third party via the P-note, and before declaring bankruptcy it had already transferred its stake to another party. This entire development took place last month. So, NIIT has not been affected, by and large, in any of its functioning because of this bankruptcy."

(Participatory notes or P-notes are derivative instruments issued by the Securities and Exchange Board of India. Through this, foreign investors that are not registered in India can trade in the Indian markets.)

Despite the bankruptcy filed by Lehman Brothers, PE investors will manage to garner a higher stake in Indian companies for a lesser price as compared to other sectors like banking or infrastructure. The growing wave of consolidation and structural changes in the OOH sector is only going to grow bigger and better in the country, forcing the valuation graphs of media businesses to move northwards.

Also read:

Lehman Brothers and Goldman Sachs pick up 20 pc stake in Times OOH