Fitch Downgrades TV18 to 'BBB(ind)'; Revises Outlook to Negative

Fitch Ratings-Mumbai/Singapore-27 February 2009: Fitch Ratings has today downgraded India's Television Eighteen Limited's (TV18) National Long-term Rating to 'BBB(ind)' from 'A(ind)' and revised its rating Outlook to Negative from Stable. The ratings of the following instruments are affected as follows:

INR1,250m long-term loan downgraded to 'BBB(ind)' from 'A(ind)'

INR670.1m term-loan downgraded to 'BBB(ind)' from 'A(ind)'

INR850m fund-based working capital limits downgraded to 'BBB(ind)'/'F2(ind)' from 'A(ind)'/'F1(ind)'

INR70m non fund-based working capital limits downgraded to 'F2(ind)' from 'F1(ind)'

INR250m commercial paper/short-term debt programme downgraded to 'F2(ind)' from 'F1(ind)'

The rating action reflects the greater-than-expected deterioration in TV18's financial profile over the nine-month period ended 31 December 2008 (9mFY09) and deployment of the large cash balances available with the company over the period to support its subsidiaries and group companies. TV18 reported a EBITDA loss of INR104.1m in 9mFY09 on a consolidated basis, primarily due to the significant launch expenses and development costs of Web 18, and to some extent due to expenses related to its print media businesses including one time charges. There is also pressure on profitability on TV18's core news operations business due to a significant slowdown in the renewal of advertising contracts. In addition, the company has utilised a substantial portion of its liquid balances (around INR6.76bn as of FYE08, and INR2.6bn as of end-9mFY09) in investments in group companies, primarily in Infomedia18 and direct investments into other group companies. At the same time, the company has also raised significant fresh debt to meet the increased requirement of working capital and supporting its investments. Consequently, net debt levels increased substantially to INR6.6bn at end-9mFY09 compared to negative net debt levels at FYE08. The Negative Outlook reflects the expectation of ongoing pressure on operating metrics in light of the difficult economic environment. With earnings and cash flow pressures expected over FY10 for many sectors, Fitch expects advertising revenues, being largely discretionary in nature, to remain under pressure over the medium term.

However, the risks are partly offset by the likelihood of increased spending on advertising during upcoming elections and the final budget coverage after a new government is formed, which could support revenues in the near-term. In addition, TV18 has been actively undertaking cost cutting measures across its businesses, which along with the one-time nature of some of Web18's losses due to initial launch expenses and charging off development costs, could help stem operating losses. In addition, TV18 has put on hold its earlier investment/expansion plans into new businesses such as print media, which could reduce the extent of negative free cash flows to be funded through FY10. Fitch has factored the expected benefits from these initiatives into the ratings. Continued pressure on key credit metrics due to earnings and cash flow pressures and/or group investments could put further pressure on TV18's ratings. Conversely, realisation of benefits from the company's ongoing operational initiatives, coupled with a revival in advertising revenues materially benefiting credit metrics could lead to the Outlook being revised back to Stable, as could material reductions in net debt levels through equity infusions and/or monetisation of equity stakes in subsidiaries/group companies.

TV18's ratings reflect its market leadership in India's business news channels. Both the Hindi and English business channels, through CNBC and CNBC Awaaz, of the company are market leaders in their respective segments, supported by consistently high quality content and a credible journalist team. Although working capital requirements remain high for the company, short-term liquidity remains supported by existing cash balances, which are sufficient to meet immediate repayments over the next 4-5 months, although the company remains exposed to refinancing risk over the short- to medium-term.

On a consolidated basis, TV18 reported revenues of INR3.5bn for 9mFY09, although EBITDA remained negative. This compares with consolidated revenues of INR3.9bn and an EBITDA of INR805m in FY08. The company recorded interest expenses of around INR752m, which was partly funded through its cash balances in the absence of adequate operating cash flows.

Contacts: Nikhil Gupta, Mumbai, Tel: +91 22 40001732/e-mail: nikhil.gupta@fitchratings.com; Salil Garg, New Delhi, Tel: +91 11 43567244e-mail: salil.garg@fitchratings.com; Priyamvada Balaji: +91 22 40001742/e-mail: priyamvada.balaji@fitchratings.com.

Media Relations: Shivani Sundralingam, Singapore, Tel: + 65 6796 7215, Email: shivani.sundralingam@fitchratings.com.

Note to Editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(ind)' for National ratings in India. Specific letter grades are not therefore internationally comparable.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

***

Fitch Ratings is one of the three large global credit rating agencies. Fitch rates 6000 financial institutions, including some 3,200 banks and 2,400 insurance companies, more than 1,700 corporates and 100 sovereigns as well as public finance, sub-sovereigns and structured finance transactions.

Fitch India has four rating offices located at Mumbai, Delhi, Chennai and Kolkata. Fitch is recognised by Reserve Bank of India, Securities Exchange Board of India (SEBI) and National Housing Bank.

***