A rating agency in 2018 had said that Essel Group’s financial stress is undeniable and that it may be running out of shares to pledge.
In an open letter to lenders, Subhash Chandra, Chairman, Zee and Essel Group, had pointed out his mistakes that has led to the financial mess.
According to him, incorrect bids, recommendation made to brother Jawahar Goel to buy D2H from Videocon, burden of debts Chandra had taken when family business separation was implemented and IL&FS meltdown were the key reasons behind the current state.
It was in November 2017 when National Highways Authority of India (NHAI) had terminated work contract of Essel Infra due to faulty bidding along with other major infra companies. The company was even barred by NHAI from bidding for PPPs (public-private partnerships) till July 21, 2019 and had also said that it cannot participate in EPC (Engineering, Procurement and Construction) projects till July 21, 2018.
Many non-media businesses in the Essel Group are loss-making and the losses mounted to Rs 666 crore against a revenue of Rs 796 crore as of March 2017 data analysed in a Bloomberg Quint report.
The Group's EPC business as a whole made Rs 42 crore loss, according to the FY17 data. Essel had last year in October announced the sale of four transmission line business to Edelweiss-backed Sekura Energy an enterprise value value of Rs 6,000 crore.
A rating agency in 2018 had said that the Group's financial stress is undeniable and that it may be running out of shares to pledge.
In a recent address, Punit Goenka, MD and CEO, Zee, said that of the three Infra assets, one deal is done and funds are expected soon. He added that solar and road asset deals are likely to see full consummation in 3-6 months.
Management estimates the enterprise value of the three infra asset sale is upwards of Rs 200 billion and equity value is Rs 80-90 billion. According to Goenka, the sale of the infra assets would remove a significant part of the pledge, only a small amount would be left to take care of.
When the merger between DTH arms of Videocon and Essel Group took place, it led to a legal dispute that started after a company called Nityank Infrapower and Multiventures approached NCLT (National Company Law Tribunal) to prevent allotment of shares to Videocon Group company Domebell.
According to Nityank, it had a pledge on Videocon D2H shares owned by Domebell and that the shares should be alotted to Nityank.
On the other hand, Domebell and other Videocon firms approached the Delhi high court in August last year and claimed that Nityank belongs to the Essel group and the company had unlawfully invoked a pledge on Videocon D2H shares. These were the shares that were placed as security with the Essel Group in case the merger with Dish TV were to fall through.
Matters became worse for the Essel Group when Serious Fraud Investigation Office (SFIO) started its investigation on companies that made huge cash deposits in the aftermath of demonetisation.
During the probe, Nityank which was earlier known as Dreamline Manpower Solutions had come under the scanner of the fraud watchdog for depositing and withdrawing huge amounts of cash with Yes Bank.
While Essel denied any association with Nityank, Videocon has a different story to tell. The latter wrote to SFIO saying that Nityank subscribed to its debentures worth Rs 1,626 crore on behalf of the Essel Group. This was for an advance payment for the shares that the Subhash Chandra was buying in the Videocon D2H business.
On January 25, in a conference call held by Zee, the company's management said that "Nityank is an independent company and does not belong to either Zee or the Essel group. Zee is also not involved in the ongoing SFIO investigation into Nityank."
Deutsche Bank in its latest research note said that one of the key downside risks for Zee includes any linkages to companies being investigated by SFIO.
When India’s leading infrastructure finance company IL&FS failed to pay back the lenders it led to one of the worst crisis India has seen. The company is sitting on a debt of around Rs 91,000 crore.
In the aftermath of the IL&FS crisis, refinancing of debt became difficult as a result of which Essel Group decided to sell up to 50 percent of their stake in Zee Entertainment, said a latest CLSA report.
While Nomura, Deutsche Bank and CLSA maintain a buy rating for Zee, the latter also pointed out certain investment risks in Zee.The report said: "Zee Entertainment operates in a highly competitive TV broadcasting space and hence continued popularity, reflected in good TV ratings, is important. A pickup in advertising growth rates is dependent on a broader economic upturn along with its network performance vis-à-vis competitors. Content investments in movies and digital will warrant pick up in revenue growth. Faster-than-expected rise in content costs could impact earnings."