Bollywood film producer seeks dollar debt as maturities loom

Cinema still: Bajrangi Bhaijaan starring Salman Khan
Cinema still: Bajrangi Bhaijaan starring Salman KhanPHOTO: EROS INTERNATIONAL

MUMBAI (BLOOMBERG) - Filmmaker Eros International is tapping the popularity of India's movie industry to meet international investors for a potential US dollar bond to refinance its debt.

The movie maker and distributor, listed in Mumbai and New York, traveled to Singapore, Hong Kong and London for the fundraising, people familiar with the matter said this week.

The company had US$293.6 million (S$414.3 million) of borrowings at the end of 2016, of which US$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 per cent share of the Bollywood box-office collections and about 40 per cent of all Indian language films released in theaters in the United Kingdom and the United States, 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 US$211.3 million and US$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.