March 6, 2017 / 3:21 AM / 9 months ago

Bollywood film maker Eros pitches high-yield bonds

SINGAPORE, March 6 (IFR) - India’s Bollywood film industry is set to premiere in the US dollar bond market as one of the country’s biggest distributors prepares its debut high-yield offering.

Eros International, a film producer and distributor listed in New York, started investor meetings last Wednesday ahead of a potential issue of Reg S US dollar senior bonds. It is visiting Hong Kong, Singapore and London, with an offering slated for this week.

Eros plans to raise $200 million, plus an undisclosed greenshoe, through five-year bonds with a call option after three years, according to a source close to the deal. Deutsche Bank is sole global coordinator and joint bookrunner with Barclays, while Jefferies is lead manager.

Proceeds will help refinance a $115 million revolving credit facility due this month.

Eros has co-produced and distributed hits like buddy cop film Dishoom and the Akshay Kumar comedy Housefull 3. It takes in about 30 percent of India’s box office revenues and releases around 50 films per year, far more than typical Western studios.

While there are no similar bonds in Asia, film and TV content companies, such as Netflix and Lionsgate, have sold bonds previously. Eros is building up its film library and operates a digital service, making Netflix a possible reference point from a rating point of view.

S&P has assigned a B+ rating to the bonds, which will be issued in the name of Eros Films with a guarantee from Eros International.

Netflix, a B+ credit to S&P, has November 2026 bonds which were quoted at 4.5 percent on Thursday, while Lionsgate, through LG Financeco, has November 2024s seen at 5.2 percent, with a rating of B– (S&P). PAST CHALLENGES This will be a dollar debut for Eros, but not its first bond offering. In 2014, it sold 50 million pounds ($62 million) of seven-year retail bonds at 6.5 percent via arranger Investec, in an issue that had targeted proceeds of up to 100 million pounds. Those bonds were quoted at a cash price of 75 cents last week, although last year’s Brexit vote and the pound’s subsequent poor performance undoubtedly played a factor.

Eros has also endured a torrid time in the equity market. Short sellers and social media users, including Glaucus Research, criticised the company’s accounting practices and treatment of receivables in 2015, triggering an 81 percent share slide between August and November 2015.

The company is currently the subject of a class action lawsuit in the US on claims that it made material misrepresentations about the sizes and financial performances of its streaming video service and film library. Eros denies the claims, but has said it will take considerable time and resources to defend itself.

However, it benefits from strong ownership, with Capital Research and Singapore state investment company Temasek Holdings holding 16.7 percent and 8.6 percent, respectively, as of the latest available filings.

Eros warned in a filing to the SEC last month that India’s sudden cancellation of high-denomination banknotes in November would have an unknown impact on its business. The company said it released eight films in the October-December period, down from 15 a year earlier and warned its “short-term theatrical revenues were negatively impacted”.

However, Eros also said in January that a move to a cashless economy would benefit its digital streaming service. (Reporting by Daniel Stanton and Krishna Merchant; Editing by Steve Garton and Vincent Baby)

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