Subhash Chandra, chairman of Zee Entertainment Enterprises Ltd. (Photographer: Scott Eells/Bloomberg)

Brickworks Reaffirms Ratings On Essel Group Firms

Brickworks Ratings on Wednesday reaffirmed its view on entities belonging to the Subhash Chandra-promoted Essel Group. The rating review came on a day when one fund house said that it would not be able to fully return investor funds parked in its fixed maturity plan due to delayed repayments from Essel Group companies, while another chose to extend the lifecycle of a scheme.

Brickworks, however, retained the ratings of Essel Group entities at BWR A and above, a rating which suggests “adequate degrees of safety and carry low credit risk” according to its rating scale.

In late evening releases, Brickworks Ratings said:

  • Non-convertible debentures worth Rs 200 crore of Konti Infrapower and Multiventures Pvt. Ltd. have been reaffirmed at BWR A
  • NCDs worth Rs 200 crore of Cyquator Media Services Pvt. Ltd. reaffirmed at BWR A1+
  • NCDs worth Rs 225 crore of Sprit Infrapower and Multiventures Pvt. Ltd. reaffirmed at BWR A
  • NCDs worth Rs 300 crore of Edison Infrapower and Multiventures Pvt. Ltd. reaffirmed at A

The NCDs have been retained on ratings watch with developing implications. Ratings on some debt securities of these entities had been downgraded in February.

Brickworks cited an agreement between the companies and mutual funds to reschedule the payments due by Essel Group firms as a justification for their rating decision.

A mutual fund executive familiar with the matter, who spoke on condition of anonymity, said that mutual funds had decided to reschedule NCDs of Essel Group entities coming due in March and April. This was done because of delays in the group’s asset monetisation plans. Mutual funds still believe that the Essel Group will be able to repay their dues once its plans materialise, this person said.

Had the NCDs not been rescheduled and the companies had defaulted on payments, the rating of these instruments would have been downgraded to ‘D’.

A total of five entities had issued NCDs worth a total of Rs 1,375 crore that were due for redemption between March and July 2019.

The decision to offer Essel group companies an extended repayment schedule has hurt investors in fixed maturity plans which hold this paper.

On Wednesday morning, Kotak Mahindra Asset Management Company Ltd. told investors that they would not be able to redeem the entire amount they had invested in the AMC’s fixed maturity plans, because of its exposure to debt-laden Essel Group. The two Kotak AMC FMP schemes, that matured on April 8 and April 10, respectively, had an exposure close to Rs 190 crore in entities belonging to the Essel Group.

HDFC Asset Management Company rolled over the maturity date for one of its fixed maturity plans due to the scheme’s investment in Essel Group NCDs.

Mutual funds have a total exposure of Rs 7,570 crore to the Essel group, the largest being of Aditya Birla Sun Life Mutual Fund, followed by HDFC Mutual Fund and Franklin Templeton Mutual Fund. According to Value Research, HDFC Mutual Fund and Reliance Mutual Fund both have FMP schemes with an exposure to the Essel Group, coming up for redemption in the next couple of months.

Back in January mutual funds and non-bank lenders came to an agreement with Subhash Chandra, the promoter of Essel Group, to not sell shares of Zee Enterntainment Enterprises Ltd., that were pledged against the NCDs.

Brickwork and other credit rating agencies downgraded the debt instruments in February 2019 because of an increase in the pledge levels in promoters’ shareholding and increased volatility in the share price, which impacts the size of the security cover.

At the time, the company and funds had said that the promoters are in talks with potential investors to sell stake in group firms. Those stake sales are yet to materialise.

Also read: Essel Group Exposure: Kotak FMP Investors May Not Be Able To Fully Redeem Funds