To clear its loan obligations, debt-laden Essel Group on November 20 announced plans to sell 16.5 percent stake in its flagship company Zee Entertainment Enterprises to financial investors.
Promoter Subhash Chandra along with his family owes over Rs 7,000 crore to domestic lenders, including mutual funds, and Russian lender VTB.
The promoter and promoter group holds 22.37 percent equity in ZEE, of which 96 percent was pledged with lenders, as per shareholding data available on the exchanges.
Also read: Is Subhash Chandra’s stake reduction good news for Zee shareholders?
With this stake sale, mutual fund experts believe that fund houses will get back their capital stuck with the Essel Group.
“All lenders debt will be cleared through this stake sale, and in some cases fund houses will be able to recover their lost valuations,” said Dhirendra Kumar, CEO, Value Research, a mutual fund research firm.
In September, Essel group had made a part payment to the tune of Rs 2,300 crore to some mutual funds when they sold a 11 percent stake. Its total dues then were Rs 6,500 crore.
Concurring with Kumar’s view, Vidya Bala, co-founder, PrimeInvestor.in, said, “With the proceeds of stake sale, Essel may be able to pay back another tranche to MFs. To this extent MF NAVs may see some write back. However, it remains to be seen what is the amount that will still remain as due and what action MFs will take to get back their dues.”
The Essel Group, promoter of ZEE, had raised money from the fund houses by pledging shares with it.
A standstill agreement was signed with most lenders, giving promoters time till September to repaying the loans. The same was later extended for six months.
Six MFs -- Aditya Birla Sun Life, ICICI Prudential, SBI, Franklin Templeton, HDFC Mutual Fund and Kotak Mutual Fund -- had signed a standstill agreement with Essel group.
Of this 16.5 percent, 2.3 percent will be sold to OFI Global China Fund -- a subsidiary of Invesco Oppenheimer Developing Markets Fund -- which already held 8.7 percent stake in the media company.
Invesco Oppenheimer Fund – one of the oldest investors of ZEE – had in August agreed to buy out an additional 11 percent stake from its promoters for Rs 4,224 crore. The fund already held 7.74 percent stake in ZEE as of June.
After the transaction, the total holding of Essel Group in ZEE will fall to around five percent, while the encumbered holdings will fall to around 1.1 percent from 10.7 percent earlier.