IPO gone sour, Ortel eyes rights issue & PE funding

MUMBAI: Ortel Communications, Orissa’s leading multi-system operator (MSO), has abandoned its Rs 1 billion public float plans due to choppy market conditions and is scouting for private equity investment while deciding to do a rights issue to take care of its interim funding needs.

The company has mandated Equirus to find an investor and is looking at raising Rs 1 billion. Equirus had earlier helped Ortel to get private equity fund New Silk Route which had bought 23 per cent stake from the promoters for Rs 600 million and additional equity from Actis to take its total holding to 35 per cent.

Ortel plans to invest Rs 500 million over two years for its digital and new territory expansions. The MSO has cable TV operations in Orissa, Chhatishgarh, parts of coastal Andhra Pradesh and West Bengal.

The funding will be through a mix of rights issue and debt. The existing shareholders will be participating in the rights issue. Ortel promoters currently hold 63 per cent stake in the company, after buying out SREI Group’s equity in 2008. New Silk Route has 35 per cent stake and the balance two per cent is with the employees and others.

“We are looking at a rights issue and the two existing shareholders have agreed in principle to subscribe to it. Post the issue, the shareholding will be almost the same. We have a funding requirement of Rs 500 million over 12-24 months depending on our growth and we will do this with debt and the funds that we raise from the rights issue,” Ortel CEO Bibhu Prasad Rath tells without disclosing the size of the rights issue.

The company has parallelly started looking for private equity investment. “We got Sebi clearance for the IPO (initial public offering) last August but have decided to shelve it due to market conditions. We will have to file again as the one-year period is getting over (companies have to tap the market within a year of Sebi clearance or it expires). We will wait until conditions in the market improve before taking any such decision. We have mandated Equirus to find us a private equity investor at the right valuation,” says Rath.

Ortel had filed for an IPO earmarking a funding requirement of Rs 850 million, including a capex plan of Rs 344.30 million on development of its analogue and digital services, Rs 289.04 million towards expansion of network for providing video, data and telephony services and Rs 217.40 million for developing its broadband services.

New Silk Route had expressed intent to fully exit from its investment in Ortel Communications through an offer for sale in the IPO. Sources say the private equity firm had put in Rs 840 million for Ortel’s stake.

Ortel, which offers cable TV, broadband and VoIP services, has a debt of around Rs 1.5 billion. Revenue in FY‘12 stands at Rs 1.25 billion, up 25 per cent over the earlier year, while Ebitda margin is close to 30 per cent. The company incurred a net loss of Rs 150 million in the fiscal.

Ortel requires funds for digitisation and expansion of the network. A dominant player in Orissa, the company is making efforts to penetrate into the neighbouring geographies of Chhatishgarh and parts of coastal Andhra Pradesh and West Bengal where its presence is still thin.

While other MSOs mainly provide their services through the local cable operator (LCO), Ortel follows the last mile ownership model. “We are favourably positioned to implement digitisation because we have the last mile. We have already digitised 15 per cent of our network,” says Rath.

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