Zee Group begins debt repayment, but how will it complete?
The Essel Group owned by Subhash Chandra has repaid around Rs.4500 crore out of its debt owed to mutual funds for the group infrastructure and power forays. While a start has been made towards repaying the Rs.17,000 crore owed to mutual funds, it is still unclear how Essel Group will manage to close out the balance.
What exactly happened?
To understand the Essel case, one must step back to early 2019 when large mutual funds like HDFC, Birla and Kotak had asked investors to roll over their FMPs due to a liquidity crunch at one of the bond issuers. Subsequently, it did emerge that these FMPs were invested in bonds issued by group companies of the Essel group and were backed by the pledge of shares given by Subhash Chandra, the promoter of the group. In effect, this was promoter funding with inadequate collateral. That means; the MFs did not even have the luxury of selling the shares in the market to get their funds released. Shares were already down 30%, which means the FMPs would have ended up with a hole. That was when the mutual funds signed a standstill agreement with the Essel Group. Under the agreement, Essel group promoters would sell their holdings in Zee and its group companies to repay the debt before the end of September. Till that time, the mutual funds had committed to Chandra, the funds will not sell the pledged shares.
Understanding the numbers
Just over a month ago, the promoters had sold an 11% stake in the flagship Zee Entertainment for Rs.4200 crore. These funds have now been used to repay part of the debt owed to the mutual funds and mutual funds will be getting around Rs.4000 crore in the first round. The promoters were originally planning to sell around 20% stake but they could get the required price only for an 11% stake. The balance stake is also likely to be sold, but it is not clear whether the buyer will be the same INVESCO-Oppenheimer or another investor. The group also plans to sell its solar plants and other infrastructure projects that its units had invested in.
Come September – what now?
Having just managed to repay 25% of the total amount borrowed from MFs, it is hard to fathom how the group will manage the rest of the amount by end of September, when the standstill deal comes to an end. If the balance amount is not managed then either Essel could negotiate for another extension or the MFs can sell shares in the market to make good the balance loss. Either ways, the final decision will have to be communicated quickly as otherwise there could be aggressive selling ahead of the MFs putting their shareholdings in the market. In that case, a sharp price correction may actually queer the pitch for the FMP holders of these AMCs!