Subhash Chandra’s Essel group has agreed to sell an 11% stake in Zee Entertainment Enterprises Ltd (ZEEL) for ₹4,224 crore to Invesco Oppenheimer Developing Markets Fund, as the controlling shareholders of the broadcaster attempt to pay off debts before a September deadline.
Invesco agreed to pay ₹400 a share for Zee, representing a 10.7% premium to ZEEL’s Wednesday closing price of ₹361.45 on BSE, the company said in a statement.
Media mogul Chandra may, however, need to find a second investor willing to bet on ZEEL with the debt deadline looming. Essel group needs to pay lenders a total of ₹7,500 crore by 30 September.
The group is trying to close sales of non-media assets but failing that, it will have to bring another financial investor on board to meet the debt payment deadline, Punit Goenka, managing director and chief executive of ZEEL, said in an interview.
Despite Wednesday’s fundraising, there is still a large gap to bridge.
“We are looking at sales of non-media assets that will close in this timeline,” Goenka said. “If there is any shortfall, we will be required to sell some more stake in Zee.”
We have received non-binding offers on some infrastructure assets and we are negotiating them. Whatever is the shortfall, if any, will be covered from another stake sale in Zee. A strategic investor is not likely at this point; so it will have to be a financial investor.”
Before this transaction, Invesco Oppenheimer held 7.74% in ZEEL. After Wednesday’s transaction closes, their stake in ZEEL will rise to 18.74%, while the promoter group’s shareholding will fall proportionally from the current 35.79%. Nearly 64% of the promoter shares have been pledged as collateral against debt raised by Essel’s infrastructure operating firms.
Mint has reported over the past six months on Essel group’s attempts to sell part of its infrastructure portfolio in roads and solar energy projects. The group has an agreement to sell part of its solar portfolio to Adani Green Energy, while it is in talks to sell three road projects to a consortium led by the National Investment and Infrastructure Fund and Roadis, after an earlier bid to sell to a Canadian pension fund fell through.
Mutual funds that have bought papers of Essel’s operating infrastructure companies have taken the lead in pursuing a stake sale in ZEEL to make sure their dues are paid. Of the₹7,500 crore debt that ZEEL promoters owe lenders, mutual funds account for roughly ₹5,500 crore. In January, lenders to Essel promoters, primarily mutual funds, agreed to refrain from selling collateral till 30 September, to give the promoter time to raise money.
“With this deal, the promoter will be able to pay 50% of the debt against Zee shares due to lenders in the standstill agreement including mutual funds. The promoter is confident of raising the balance 50% by 30th September and paying off the roughly ₹7,500 crore debt covered by the standstill agreement. It is hugely positive for the mutual funds, which have lent money to the Essel promoter,” said A. Balasubramanian, chief executive of Aditya Birla Sun Life Asset Management Co.
A member of this consortium of lenders to ZEEL said on condition of anonymity that Essel group has not formally communicated the closure of the Invesco Oppenheimer deal to lenders and there is no clarity on whether the payments will begin immediately or at the end of September. “There is some uncertainty on how the pledged shares will be sold and what the resulting tax implication will be and how the pledges will be released. This is a step in the right direction and gives the promoters some breathing space. However, the stock might react negatively on Thursday morning because of the continued debt overhang.”
Speaking of the investment, in a press statement, Goenka said: “It gives me immense pleasure to note their strong belief and trust in the intrinsic value of our precious asset. It is the valuable belief and support of our esteemed financial investors that enables us to consistently generate great value, year after year.”
Justin Leverenz, portfolio manager of the Invesco Fund, said: “The fund in its usual business practice has been investing in the Indian markets for many years and has been a financial investor in ZEEL for 17 years. This additional financial investment underscores our continued confidence in management’s ability to deliver long-term growth and financial returns. The sound fundamentals of Zee make this a highly compelling transaction for investors in the fund.”
ZEEL reported revenue of ₹7,933.9 crore in FY19, growing at 12.4% annually over the past five years. Over the same period, ZEEL’s net worth rose 18%. The network owns 41 channels across 10 languages and commands an all-India TV viewership share of 19.7%. ZEE5, the video-on-demand streaming platform owned by ZEEL, reported a monthly active user base of 61.5 million in the fourth quarter of FY19, while its movie business revenue grew 81% to ₹2,99.7 crore.
Source: Mint