Prime Focus Streamlines Subsidiary Structure Through Debt Conversion and Divestment

On April 29, 2024, Prime Focus Limited (PFL) announced a strategic move to simplify its subsidiary structure. This involves the conversion of a loan owed by Prime Focus Technologies Limited (PFT), a material unlisted subsidiary, into equity shares of PFT, followed by the complete divestment of PFL’s remaining stake in PFT to DNEG, a leading visual effects and animation company.

Debt Conversion for Equity

• Outstanding Loan: PFL holds an outstanding loan (including accrued interest) to PFT.
• Conversion to Equity: The PFL board has approved the conversion of all or a portion of this loan, up to a maximum of ₹400 crore, into PFT equity shares. The conversion will be completed in one or more tranches at a price determined by PFT based on a valuation report prepared according to applicable regulations.

Divestment to DNEG

• Complete Sale: In conjunction with the debt conversion, PFL announced the sale of its entire existing shareholding in PFT to DNEG. This divestiture is formalised through a Share Purchase Agreement (SPA) signed on April 29, 2024, by PFL, PFT, and DNEG.
• Expanded Scope: The agreement also includes any additional equity shares that PFL might acquire in PFT through the debt conversion process (up to shareholder approval). These newly acquired shares will be sold to DNEG, subject to necessary documentation.

Financial Implications

• Consideration: PFL anticipates receiving a cash consideration of INR 303,76,60,709 from DNEG for the complete acquisition of its PFT stake.
• Timeline: The entire transaction, including debt conversion and share sale, is expected to be finalised by July 31, 2024.

Strategic Impact

This move by PFL streamlines its corporate structure and potentially unlocks value for the company. By converting the loan into equity and divesting its remaining ownership, PFL simplifies its financial relationship with PFT while potentially generating significant cash flow through the sale to DNEG. This transaction has the potential to benefit all parties involved, positioning PFT for continued growth under DNEG’s leadership.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.