Prime Focus seeks to trim debt, streamline operations

PFL’s board of directors has approved the sale of its backend facilities in Mumbai and Chandigarh to its Netherlands-based creative services division, Prime Focus World NV (PFW) for at least $38 million by way of a slump sale, PFL said in a recent presentation to investors.

The valuation was arrived at by a top accounting firm, PFL said.

At present, PFL is using these facilities to conduct the business of providing 2D to 3D conversion and rendering visual special effects on an ‘exclusive outsourcing basis’ to PFW through a service level agreement.

Once this transaction is completed, PFW will source and execute these projects on its own while PFL will only own the Bollywood business, which refers to its business of providing post production and visual effects services.

“What we are doing is ensuring that our operating and capital structures are aligned. It just makes life easier from a management standpoint while ensuring clarity for investors and employees,” said Namit Malhotra, founder and Group CEO.

Malhotra said the sale will reduce duplication of resources and result in higher margins and profitability.

Post deal, the company expects to bring down debt at the standalone entity level and reduce interest expenses.

“The sale of the backend business will allow PFL to strengthen its balance sheet by using the proceeds to retire high-cost debt of the company.

This would also result in the release of a substantial portion of the current pledge on PFL's shares,” the company said in a communication to shareholders.

PFL intends to bring down the quantum of pledged shares to 13 per cent from 77 per cent during the current quarter. As on September 30, its net debt stood at $100 million, of which about $60 million is denominated in Indian rupees.

On the contrary, PFW’s balance sheet is not as leveraged, giving it the option of raising dollar denominated debt in the future. “Also, from an external investor perspective and a future capital raising point of view,

PFW’s business is better positioned owning all of its assets critical to the business, as against having an exclusive backend facility through a service level agreement.

Further, international investors also do not look at related party transactions with a favourable view,” the company said.

PFL will continue to be the majority owner of PFW.

Source: http://cablequest.org/news/technology-news/item/3636-prime-focus-seeks-to-trim-debt,-streamline-operations.htmlSource: http://cablequest.org/news/technology-news/item/3636-prime-focus-seeks-to-trim-debt,-streamline-operations.html