Why Essel Group Scrapped Plan To Sell Half Of Zee Stake To Strategic Investor

Essel Group, which sold stake in Zee Entertainment Enterprises Ltd. to a financial investor, said it couldn’t sell half its holding to a strategic partner as planned because that wouldn’t have allowed the promoters to adhere to the timeline to repay lenders.

Sticking to the eight-month standstill deadline would not have been possible without bringing a financial investor on board, Punit Goenka, chief executive officer at Zee, said in an analyst call after Subhash Chandra-led promoters agreed to sell up to 11 percent to an Invesco Oppenheimer fund. Several things went wrong against the earlier plan, Goenka said, pointing to a 37 percent stock crash in January and the general election.

Initially, the promoters planned to sell half their shareholding in India's largest broadcaster to a global strategic partner. The announcement, made in November, said that divestment would help transform Zee into a “global media-tech player”. Chandra was also said to be in negotiations with strategic investors including a consortium that included U.S. cable giant Comcast Corp., James Murdoch’s Lupa Systems and Blackstone Group Inc, Bloomberg reported earlier.

Invesco Oppenheimer Developing Markets Fund has agreed to acquire up to 11 percent stake in Zee from its promoters for Rs 4,224 crore. The divestment will give the Zee promoters “the required fillip to initiate the repayment process”, a media statement said.

Oppenheimer Fund already owns 7.74 percent stake in Zee Entertainment, as of June filings with the stock exchange. The deal could increase its stake in the broadcaster to over 18 percent.

The fund will not have a nominee on the board and will only be an equity shareholder, Goenka said. “It is a pure equity deal. There is no hold back as part of the deal.”

Still, Goenka did not rule out selling more stake in the broadcaster. The Essel Group has already identified buyers for its solar and road assets but if the non-media sales get delayed then they will “step it up with the Zee stake sale”, Goenka said. He said those deals could be done by August.

The outstanding loan amount against pledged shares across the Zee group is Rs 11,000 crore, according to Goenka. This includes principal, interest and upside sharing with the lenders. He said it is a priority for his family to retire the entire loan burden. Goenka said they are committed to repaying all dues by Sept. 30—when the standstill with lenders ends.

After the stake sale, Essel Group’s stake in Zee Entertainment will fall from 35.79 percent to below 25 percent. Promoters will be left with enough shares for them to be motivated, Goenka said.

Catch the analyst call with Goenka here: