On Wednesday, US-based Invesco-Oppenheimer Developing Markets Fund agreed to pick up 11 per cent stake in Zee Entertainment Enterprises, the flagship media company of Subhash Chandra’s Essel Group. The fund will pick up the stake for a consideration of Rs 4,224 crore, and the purchase will increase its shareholding in the company to 18.7 per cent.
Zee Entertainment said that proceeds from the stake sale would go towards paying off loans worth Rs 13,000 crore that the Essel group has across various group companies, particularly in infrastructure, and will also help avert a looming default of Rs 7,000 crore of payments to mutual fund investors in September. The “Essel Group had initiated the process of divesting its key assets, with an aim to repay all the lenders by September 2019,” the statement said.
Why did investors show interest?
This announcement comes days after the company announced a nearly 40 per cent jump in its profit at Rs 512 crore on a revenue of Rs 1,789 crore ( a y-o-y growth of 14.5 per cent) in the quarter ended June 2019. Even as mutual funds saw their investments in Essel/Zee Group turn illiquid over the last few months, senior officials with mutual funds that have exposure to the group have remained confident of the Group’s ability to find a suitor.
In private conversations they maintained that Zee Entertainment was a strong profitable company with good growth prospects and there was no reason to worry.
The share price of the company that had hit a 52-week low of Rs 288.95 on January 25, 2019, has seen a sharp recovery over the last few days. While it rose to hit a high of Rs 405.5 on July 26, since the drop in January, it closed at Rs 361.65 on Wednesday.
What does this mean for the group?
While the promoters of Zee Group were on the lookout for a buyer for Zee Entertainment over the last seven months to repay their debt, the news not only provides a reprieve to promoters of Zee Group but also comes as a comfort for the investors and lenders including mutual funds and insurance companies who had lent the significantly to the promoters against collaterals.
While several debt funds came under pressure as they could not repay their entire commitment to their investors, the development would mean that as the promoter repays his debt to the investors and lenders (from the proceeds of stake sale), they in turn will be able to repay the remainder of their obligations.