Essel Group to sell up to 11 percent in Zee Entertainment

The Essel Group today announced that its promoters have entered into a definitive agreement with one of their oldest shareholders, Invesco Oppenheimer Developing Markets Fund, to sell upto 11 percent stake in Zee Entertainment Enterprises Ltd (ZEEL) for a consideration of upto Rs 4,224 crore. At present, Invesco Oppenheimer owns 7.74 percent stake in ZEEL.

The promoter share sale comes at a time when the Goenkas are racing against time to pay their lenders by September-end this year. While addressing investors after the deal announcement, Punit Goenka, managing director and CEO of ZEEL, said that the loan against shares stands at Rs 11,000 crore inclusive of all interest costs. The share sale deal is expected to be closed by August.

It is important to note that the amount that will roll in after the taxation is yet undeclared. Goenka did not offer any clarity on how much it will actually end up making from this deal. Analysts pegged the take-home for the founding family of Essel Group will be anywhere near Rs 3,500 crore post tax. Forbes India cannot independently identify the number at this time.

Currently, the promoters own 35.79 percent stake in the company, which will come down by 11 percent, depending upon how many shares they can acquire from lenders. Goenka believes this deal will reset the share price of the company as the transaction was concluded at nearly Rs 400 apiece, whereas at the end of the day, ZEEL’s shares were trading at Rs 361.45 per share on the Bombay Stock Exchange. The share price has seen sudden spurt in volumes since July 24. In fact, the shares saw a spurt in volume of 1.16 times on July 26.

Even if the promoters manage Rs 3,500 to Rs 4,000 crore on the upper band, it still has to pay another Rs 7,500 crore from sale of other assets to release its shares. This is the first time any meaningful sale has concluded in the firm to raise capital to pay back lenders. The family owes money to mutual funds and banks.  In April this year, Kotak Mahindra Asset Management Co had to withhold redemptions from one of its fixed maturity payments. Other funds that have exposure to Essel Group debt are SBI Asset Management Co. Ltd, HDFC AMC, Reliance Nippon Life Asset Management Ltd, Franklin Templeton Asset Management (India) Pvt. Ltd, Aditya Birla Sun Life AMC Ltd, UTI AMC Ltd, Baroda Asset Management India Ltd and ICICI Prudential AMC.

Goenka, in the investor call, further said that the Group is focusing on non-media asset sales, which include its solar power company and road assets. He added that they have identified buyers for these two assets and it “will enable the group to repayment well within the time line”. The firm has clarified that it has not signed any binding bids yet but due diligence process is on for the sale. According to a media report in Mint, they were looking to fetch nearly Rs 3,000 crore to Rs 3,500 crore as enterprise valuation for the three road assets. The valuation for the solar power assets is not available publicly.

Apart from this, Goenka indicated that the promoter family is open to further share sale program to meet the target of Rs 11,000 crore to payback lenders, which it owes for loan against shares. This loan does not include loans taken by the companies for their operational purposes, but only the bucket of loans pledged by the promoters.

This transaction comes at a time when the promoter family had been engaged in talks with strategic buyers to sell majority stake in ZEEL’s flagship business to repay its loans. Goenka said that they waited a long time before a strategic partner could come in and then decided to go ahead with the share sale program as the strategic transaction would have longer to close and they wouldn’t have been able to return capital to lenders.

He further said that any transaction in the media business does not have to be equity-based, but could be a strategic alliance. He did not elaborate further on that sale process. “After the realisation of non-media sales, we would know how much needs to be sold, and Zee is the crown jewel,” Goenka added in the call.

“It is big, positive news for the company and for the markets as it allays the fear of repayment issues. The non-core asset sales will be a larger agenda and give them a window to realise better valuations. This transaction shows that foreign investors are definitely looking to invest,” says Sanjiv Bhasin of IIFL Securities Ltd.