Mutual Funds Achieve Closure On Loan Against Shares In Essel Group Debt
That came after the second tranche of sale of Zee Entertainment’s shares by Essel Group’s promoters on National Stock Exchange.
Domestic mutual funds managed to recover their entire money lent against shares of Zee Entertainment Enterprises Ltd. to the Essel Group after the second tranche of share sale by the group’s promoters on the National Stock Exchange today.
The share sale also brings closure to mutual funds who had entered into a standstill agreement with the Subhash Chandra-promoted group in January this year after the shares witnessed sharp single-day correction.
Mutual funds had a total exposure of around Rs 7,500 crore to Essel Group’s non-convertible debentures. The group had offered Zee Entertainment's shares as collateral.
With the share sale on the NSE’s block deal platform, the fund houses will receive the outstanding amount against Zee shares of around Rs 1,300 crore held by Aditya Birla Sunlife Mutual Fund, HDFC Mutual Fund and ICICI Prudential Mutual Fund. The deal will also not impact the pledging of the Dish TV and Siti Network shares.
The mutual fund industry has recovered their entire exposure to debt against Zee shares, said A Balasubramanian, managing director and chief executive officer of Aditya Birla Sun Life AMC Ltd.
The Zee group’s promoters in August sold 11 percent stake to Invesco Oppenheimer at Rs 400 per share to raise over Rs 4,200 crore. The group had hoped its infrastructure asset sales would be completed by September but was unable to complete the transaction. That led it to undertake a second transaction in Zee Entertainment shares, raising Rs 4,343.2 crore, from sale of close to 16 percent stake, according to the block deal window data on the National Stock Exchange’s website. The company had said yesterday it will sell 16.5 percent stake—or 15 crore shares—on the exchange platform. The proceeds of the sale would be distributed to three mutual fund houses, a few non-bank lenders and Russian bank VTB.
The promoters would be left with 5 percent stake in the entertainment company.
“Debt is an obligation and if you don’t repay on time, you have to lose your assets, you have to lose your security and you could lose your company as well,” said Nilesh Shah, chief executive officer of Kotak Mutual Fund.
“It’s extremely essential for the financial services sector that rule of law prevails. For earning 2-3 percent margin, we take risk on 100 percent of capital and unless until there’s enforcement of security in a timely manner, unless there is fear of law to the borrowers that they have repay their obligation, the financial services system cannot work.”Nilesh Shah, CEO, Kotak Mutual Fund
Essel Group, then the controlling shareholder of Zee Entertainment, arrived at an understanding with lenders in January, which allowed the management to repay the debt by September initially and extended this deadline further to March 2020 to allow sale of infrastructure assets.
The deleveraging has seen the Essel group reduce its holding in Zee Entertainment from 42 percent to 5 percent in the last 11 months, exposing the company to hostile takeover. “We believe the game plan of the new management team needs to be closely scrutinised,” Macquarie said in a report dated Nov. 20.
The promoters are likely to continue with the deleveraging process as they still owe lenders close to Rs 2,400-2,900 crore.
Essel Group will now have to pay lenders proceeds from sale of its infrastructure assets, including roads and solar farms by March 2020. But many of these assets are securitised against receivables from these assets and pledge of Dish TV shares, a senior mutual fund executive told BloombergQuint on the condition of anonymity. The executive said these assets have operational revenues like toll and payment of dues is back-ended—at the time of redemption.
Aditya Birla Sunlife AMC and Franklin Templeton AMC have a net exposure of over Rs 1,000 crore to infrastructure assets of Essel Group.