Friday, November 11, 2005

Sify and Rediff increase their war chest

Two of India's top Internet companies have looked at different ways of increasing their capital.

Recently Times of India's Internet venture brought in capital by diluting a small part of its equity.

Sify and Rediff are publically listed companies, listing their ADRs in Nasdaq, USA. In case of Sify, Satyam Computers is exiting completely by selling its remaining shares to US-based Infinity Capital Venture, LP of Raju Vegesna. In addition, Raju Vegesna will also invest a further $37 million by way of new shares from Sify. This will make him the main investor in Sify, and he will be the Chairman of Sify.

Satyam Computers, for its part, has realised a total of $117 million for its initial investment of $5 million when it seeded and started Satyam Infoway (which was later renamed as Sify) in 1995.

In the height of Internet meltdown, the Indian stock markets regularly penalised Satyam Computers for its stake in Sify, primarily because of the poor understanding of the investors as well as the accounting policies in vogue. Satyam Computers owned more than 50% of Sify and hence had to accumulate the losses Sify incurred in its books. This is not a cash loss anyway. If any, this would help offset Satyam Computers profits and thereby only reduce the tax liability. Sify was an independent company, listed on its own and had enough cash reserves and did not require any further cash infusion from Satyam Computers.

Anyway, Satyam Computers desperately tried to de-subsidiarise Sify by offloading some equity. This happened in 2002 when Softbank Asia Infrastructure Fund (SAIF) and Venture Tech Solutions invested $20 million into Sify.

Now, Satyam Computers has left completely.

As for Rediff, it is going for a public offer of a little over 3 million ADS at $15.86 per ADS, expecting to raise $ 48 million from the offering. The offering has been underwritten by Deutsche Bank Securities. You have to note that the offering is priced a bit lower than its current market price of $ 16.51.


However, it appears to me that Sify has pretty much given up on its Internet content side of things. Retail Internet is being squeezed on a steady basis with the near death of dial-up. Broadand growth is still chaotic for anyone who is not a telco. Sify Iways will also find doing business difficult when the margins are falling and grey market cyber cafes can provide connectivity at extremely low rates. Corporate services is the only growth market (including hosting services). The business will be quite challenging.

Rediff's content revenues have grown substantially. There will be a huge potential here.

Neither Rediff nor Sify have a measure of the mobile side of things with Times Internet's mobile revenue at the very top.

The market is still open and far from mature. So anything could happen over the next two years.

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