VTB Capital PLC, the investment management arm of Russia-based state-run financial services giant VTB Group, on Tuesday said that it has obtained certain lender protection rights in Essel Media Ventures Ltd. and has secured the right to potentially monetize 10.71% stake in Zee Entertainment Enterprises Ltd. held by Essel Media.
Subhash Chandra-promoted cash-strapped Essel Group’s subsidiary Essel Media is the largest promoter group entity with a 10.71% stake in Zee. The total promoter holding in Zee is 22.37%, while the rest is held by the public.
To be sure, VTB Capital is just the security agent acting on behalf of VTB Bank (Europe) SE, Austria branch, LLC, VTB Capital Holding IB and VTB Bank (Europe), which are lenders to Essel Media. These lenders gave loans to Essel Media in September 2017 against shares of Zee (held by Essel Media) as the collateral.
VTB Bank, which is the first Russian firm to get a banking licence in India, is one of the largest lenders in the Essel Group.
“Pursuant to its rights under the (loan) facility, and upon instruction from the lenders, VTB Capital has enforced certain security rights granted to the lenders in order to protect the interests of the lenders in accordance with the terms of the financing arrangement,” said VTB Capital in an exchange filing late on Monday night.
However, VTB Capital mentioned that it is hoping to reach a satisfactory resolution with the promoters and will willingly cease all enforcement action and release the encumbrances (pledged shares of Essel Media in Zee) upon repayment of the amounts outstanding under the loan facility.
On 5 October, Essel Group had told its investors that none of ZEEL’s shares were pledged to VTB Capital Plc. A day earlier, VTB Capital had disclosed on stock exchanges that ZEEL’s promoters have created an encumbrance on 102 million shares, translating to a 10.71% stake held by promoter entity Essel Media.
Punit Goenka, CEO of ZEEL had then told investors, including several mutual funds, in a conference call that VTB Capital has not invoked any of those pledged shares and that the loan sought from VTB Capital, was always included in the total loan against shares disclosed to the market.
In the call Goenka also said that 90% of the current 22.37% of the promoter shareholding of ZEEL was pledged and the number of pledged shares have increased compared to the data as on 30 June, when it stood at nearly one-third of promoters’ 35.79% shareholding in the company, translating to a pledge of over 210 million shares.
Promoters of Essel Group have a debt of around ₹11,000 crore. Essel Group companies together owe another ₹11,400 crore separately, according to a 5 October Mint report.
To repay a part of the debt, the promoters recently agreed to sell an 11% stake in Zee, the group’s flagship media and entertainment firm, for Rs.4,224 crore to US-based Invesco Oppenheimer Developing Markets Fund.
Goenka had told investors that ZEEL’s promoters were confident of repaying their debt within three months through asset divestment, much ahead of the six-month extension given to them by lenders.
This extension agreement hasn’t gone down well with India’s market watchdog, which regulates listed companies such as Zee and also mutual funds which have lent money to Zee.
Mutual funds have lent around Rs.4,000 crore to ZEEL through non-convertible debentures (NCDs). Fund managers of fixed income schemes, such as fixed maturity plans (FMPs), had bought the ZEEL NCDs.
Ajay Tyagi, chairman of the Securities and Exchange Board of India (Sebi), on 27 September, has said that asset management companies (AMCs) cannot resort to any kind of standstill agreement with borrowers.
A standstill agreement is an understanding between a lender and a borrower, wherein the lender stops demanding a scheduled payment of interest or principal on a loan so that the borrower gets time to restructure its liabilities.
A day earlier (on 26 September), Zee Entertainment had said its lenders, including mutual funds, had extended the loan repayment deadlines.
Source: Mint