Photographer: Brent Lewin/Bloomberg

Bollywood Film Producer Seeks Dollar Debt

  • Eros International has $126.1 million debt due within a year
  • There could be higher leverage in future for Eros, S&P says

Filmmaker Eros International Plc is tapping the popularity of India’s movie industry to meet international investors for a potential U.S. dollar bond to refinance its debt.

The movie maker and distributor, listed in Mumbai and New York, traveled to Hong Kong, London and Singapore for the fundraising, people familiar with the matter said this week. The company had $293.6 million of borrowings at the end of 2016, of which $126.1 million is repayable within one year, according to its bond offering circular.

India produces between 1,500 to 2,000 movies every year, making it the world’s largest, according to a Deloitte report in September. Eros has a 30 percent share of the Bollywood box-office collections and about 40 percent of all Indian language films released in theaters in the U.K. and the U.S., S&P Global Ratings said in a Feb. 28 note. Higher working-capital requirement is likely to strain the company’s finances, the rating agency said.

“The higher working capital investments resulting from extended credit to their customers could put pressure on the free cash flow,” Ashutosh Sharma, an associate director for corporate ratings at S&P, said in an interview. “That means there could be higher leverage going forward.” The agency assigned an expected B+ rating to Eros’s planned 2022 notes.

Eros has no plans to raise new debt in the short run and the proposed fundraising won’t lead to an increase in borrowings, according to a company official who declined to be identified before the closure of the bond sale.

The company has been investing heavily on its Netflix-like digital content platform Eros Now. It spent $211.3 million and $276.2 million to buy film content over the past two fiscal years, according to the offering circular. Its leverage, calculated as total debt-to-adjusted EBITDA, climbed to 4.8 times at the end of last year from 4.4 times on March 31, 2016, according to the company’s presentation seen by Bloomberg. 

“If the dollar bond sale happens, it will help the company optimize interest costs and manage liquidity better given they have a strong slate of movie releases,” Jigar Shah, head of research and chief executive officer at Maybank Kim Eng Securities India Pvt., said in an interview on Friday.

Eros’s GBP50 million bonds due 2021 was at a yield to maturity of 14.2 percent after surging past 30 percent in November 2015 when U.S.-based short seller Glaucus Research said the company’s shares are worth zero and anonymous Twitter users and a blogger called Alpha Exposure cast doubt on the company’s financials. Its U.S.-listed shares plunged to below $8 in the last quarter of 2015. They have since rebounded to $11.8.

Here is a list of major shareholders at Eros, according to the company presentation.

  • Temasek Holdings: 10.3 percent
  • Capital Research Global: 13.7 percent
  • Paradice Investments: 8.3 percent 
  • Jupiter Asset Management: 5.4 percent
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