ZEE stake sale done, but Essel needs more 

While it has got Rs 4,224 crore from the sale, the rest of the money needed to meet its Rs 11,000 crore debt obligation still needs to be raised.
Essel Group Chairman Subhash Chandra (File | PTI)
Essel Group Chairman Subhash Chandra (File | PTI)

Debt-ridden Essel Group might have gained some relief from its agreement to sell 11 per cent of flagship Zee Entertainment Enterprises (ZEEL) for Rs 4,224 crore, but it still has a way to go before it is able to raise enough cash to meet its around Rs 11,000 crore debt repayment before time runs out on September 30.

While the Essel Group had an overall debt of around Rs 16,000 crore, around Rs 11,000 crore of debt raised from mutual funds and non-bank institutions by pledging promoter shares across group firms, including ZEEL, needs to be settled by September 30, according to the standstill agreement reached with creditors in February. 

Company officials like Punit Goenka, chief executive of ZEEL, have asserted that the group will be able to complete the sale of non-media assets within the next two months to raise the rest of the cash required. But, he has not ruled out another stake sale in ZEEL if these other deals don’t pan out. In a conference call with analysts after the stake sale announcement, Goenka noted that “promoters will know how much more they may need to sell to repay lenders only after the sale of non-media assets”, adding that the sale of its road and solar energy assets in the final stages.

However, the Subhash Chandra-led group’s Rs 4,224 crore influx of cash doesn’t seem to have enthused the markets, with analysts observing that the group has a tough task ahead in raising the rest of the money. Morgan Stanley’s Parag Gupta, for instance, noted that was “a first step of many, but it doesn’t remove the overhang on the stock”. 

“The risk we see here is that infra asset sales have been pursued for quite some time now, and if that process remains sluggish then monetization may not happen in the next two months,” Gupta wrote in a note. This would see the group again resort to offload more of its promoter stake in ZEEL, but a strategic investor would likely remain off the table.

Sources add that the group’s management believes that a substantial part of the Rs 6,700-odd crore it needs to raise now will come from the sale of its road, solar energy and transmission assets, including those of Essel Infraprojects Ltd. “There are already binding offers for these assets, and if they come through, there might not be a need to sell any more substantial chunks of ZEEL. If any such sale is required, the group may approach another financial investor,” said a person in the know. 

For its part, Essel said that the “11 per cent stake sale of ZEEL to the Fund is a strong step in the overall divestment process, giving the promoters the required financial fillip to initiate the repayment process” and added that it “is confident to complete the overall process of repayment, well within the agreed timeline”. 

Promoters held 35.79 per cent in ZEEL as on June 2019, of which 63.98 per cent has been pledged. The Invesco Oppenheimer fund, meanwhile, already holds around 7.74 per cent and the deal will see this rise to 18.74 per cent, while the promoter holding will come down to 24.79 per cent. ZEEL stock have fallen 5.4 per cent from Rs 361 on July 31, when the deal was announced, to Rs 341.5 at the end of trading on Friday. 

Non-media assets to be sold in two months

The group will be able to complete the sale of non-media assets within the next two months to raise the rest of the cash required. But, according to a senior company officlal, the company has not ruled out another stake sale in ZEEL if these deals don’t pan out

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