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Following the money

Bollywood goes abroad in search of legit coin

NEW DELHI — Once the buzz phrase in Bollywood was “mob money.” Now, it’s “new money.”

The change speaks volumes about the transformation India’s Hindi-lingo film industry has undergone in the past few years.

In the 1990s, most movies were made by family-owned or privately held production houses, some of which were controlled by the underworld and financed through laundered money or slush funds. Other movies were financed through producers’ contributions, pre-selling distrib rights or private film financiers — the so-called traditional sources of coin.

A bust in Bollywood films a few years ago coupled with several mobsters being put behind bars changed the financial scene.

Since 2000, however, according to Sunir Kheterpal, of Netherlands-based Yes Bank, there has been a marked swing toward tapping money from non-traditional sources.

This was partly due to the Indian government in 2001 recognizing film as an industry that has a key role in the country’s economy and allowing it access to institutional funding.

Under the system, only companies — not individuals — can access funds from institutions such as the Industrial Development Bank of India and the State Bank of India, which offer loans at 12%-14% interest instead of the usual 24%-36%.

This switch saw film companies start to mushroom across the country. Large industrial groups such as AV Birla and Oswal, and India’s two largest industrial entities, Tata and Reliance, dabble in moviemaking — not too successfully yet, however.

Companies such as Mukta Arts, Padmalaya Telefilms, UTV and Pritish Nandy have all been to the market to raise money.

Private equity is becoming more popular as a source of nontraditional funding, says Kheterpal. It is the most trendy means of film financing — for India at least; individuals enter into contracts for financing a movie with returns payable on profits made.Ravi Gupta, chief exec of Mukta Arts, wants to go even further. The industry, he argues, should be allowed to float limited-liability companies as a “special-purpose vehicle” for a particular film. “These will take in equity from individuals and then would be wound up after the film is completed.”

Other nontraditional sources, Kheterpal says, include funds from music companies and TV channels such as Zee Telefilms and Sahara One.

According to Kheterpal’s estimates, $57.5 million — spread over 44 projects — was invested in film financing from nontraditional sources in 2004, up from $39 million spread over 33 pics in 2003, $12.7 million spread over 11 film projects in 2002 and $9.5 million spread over four films in 2001.

A new trend in 2004, he notes, was that this type of funding went was going toward medium-budget (less than $500,000) movies targeted at urban audiences and involving extensive use of English — such as “King of Bollywood.” The trend is continuing into 2005 with pics such as “Black,” “My Brother Nikhil” and “Page 3” among about a dozen already made that have relied at least in part on non-traditional film financing.

“Use of nontraditional finance sources is likely to grow further over the coming years,” Kheterpal says. “In addition to entry of new money into the Hindi film industry, this trend will enable higher transparency in operations.”

Adding to the shift in industry financing is what PricewaterhouseCoopers identified as “NRI dollars,” cash being poured into Bollywood by Indians living abroad (known as Non-Resident Indians) especially those who have made it big in Silicon Valley.

“It started with tech investor Kanwal Rekhi putting money into Bollywood,” a recent PricewaterhouseCoopers report said. “Now the emerging trend is of Indian and foreign techies coming forward to finance their own movies with the help of friends and families.”

The report said more than a dozen Indo-American projects are under way, including “Padmashree Laloo Prasad Yadav,” by Mahesh Manjarekar, which was funded to the tune of $1 million by software exec

Krishna Pillai and his wife, Renuka.

Foreign funding for Bollywood at last!

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