Essel Group: Subhash Chandra To Lose Control Of Flagship Zee Entertainment

In a second effort to raise funds to pay off debt, Subhash Chandra-led Essel Group, the promoter of Zee Entertainment Enterprises Ltd., will sell 16.5 percent shareholding in the media major to financial investors.

After this transaction, the promoter stake in Zee Entertainment will stand reduced to 5 percent, said a company statement. Though Chandra’s son Puneet Goenka remains managing director and chief executive officer and his term, that was to end on Dec. 31, recently received in-principle approval from the company board for a five-year extension. It’s not clear if that will change with new investors coming aboard.

Key Highlights Of Stake Sale

• Essel Group to sell up to 16.5 percent stake In Zee Entertainment to financial investors.
• To repay loan obligations to certain lenders of the group for whose benefit such shares are currently encumbered.
• Essel Group seeks to sell 2.3 percent stake in Zee Entertainment to OFI Global China Fund and its affiliates.
• Post-transaction, overall promoter holdings in Zee Entertainment will be 5 percent, out of which encumbered holdings of the group will reduce to 1.1 percent.
• Essel Group working actively on further divestments including its media/non-media assets.

Earlier this year, Essel Group sold up to 11 percent in Zee Entertainment to Invesco Oppenheimer Developing Markets Fund for Rs 4,224 crore. At the time, Invesco already owned 7.74 percent stake in Zee Entertainment.

Thereafter, the promoter held 22.37 percent stake in Zee Entertainment, according to September-end exchange data. Of that, 96 percent was encumbered with domestic mutual funds, financial institutions and foreign lenders. This includes the 10.7 percent stake pledged with Russian lender VTB.

The divestments of promoter stake in its flagship company, as well as pending sale of some infrastructure assets, were prompted by large debt taken by Essel Group entities—a 2018 BloombergQuint investigation had estimated it at Rs 17,000 crore. The group had pledged shares of its listed companies in order to raise this debt.

Close to Rs 11,000 crore of this debt was owed to asset managers and non-bank financial companies. Essel Group repaid half the amount via the stake sale to Invesco Oppenheimer. As of the beginning of this month, total promoter debt obligation stood at Rs 7,000 crore, of which Rs 5,000 crore is owed to domestic lenders.

Depending on the final list of buyers and the shares they purchase in this second divestment, the promoter’s 5 percent stake in Zee will be the second-largest after Invesco’s over 18 percent.