Essel Group to lose controlling stake in Zee Entertainment

Debt-laden Essel Group, promoter of Zee Entertainment, is looking to sell up to 16.5 percent stake in the media company.

After the transaction, Essel's holding will come down to five percent in Zee, out of which encumbered holding will be 1.1 percent.

"Essel Group will be left with token stake and they will have financial interest in Zee," said Utkarsh Sinha, Managing Director, Bexley Advisors.

While Sinha said that the 16.5 percent stake sale was an unexpected outcome, it is one among the few good options available.

"This way, the sale would proceed in an orderly fashion which is critical for maximising value," he said.

He added that stake sale to financial investors is the best possible outcome they (Essel Group) could have hoped for given the fact that Zee shares have tumbled.

On October 19, Brickwork Ratings downgraded Zee's six per cent Cumulative Redeemable Non-Convertible Preference Shares and the Issuer rating.

The rationale behind the downgrade was deteriorating financial flexibility of the group marked by increased pledge of promoter holding, among others.

The silver lining in the recent development is that 2.3 percent stake in ZEEL will be sold to OFI Global China Fund, which is a subsidiary of Invesco Oppenheimer Developing Markets Fund, that already holds 8.7 percent stake in Zee.

Invesco has been an investor in Zee since 2002.

"The fact that they (Invesco) wanted to increase their stake even via subsidiary route is a positive signal. It is always a positive signal when an existing investor doubles down. Invesco is a seasoned hand in Zee," said Sinha.

Sinha added said that he does not rule out Essel reducing its stake further.