New Delhi: On February 3, the Essel group stated that it had signed an understanding with its lenders that there will not be any event of default declared till September 30, 2019 and got eight more months to clean its books. Between January 25 to February 1, several lenders, including Credit Suisse, sold part of the Essel group promoters’ shares in Zee Entertainment Enterprises worth over Rs 1,000 crore that were pledged with them, as the group’s two listed companies - Zee and Dish TV -- saw their stock price fall by 26% and 33%, respectively. But, the Essel group claims that the lenders consent covers about 96-97% of the loan value, essentially loans raised through the pledged shares’ route.
Newsclick has earlier reported that one of the reasons for the crisis in Essel group was a direct after-effect of Infrastructure Leasing and Financial Services (IL&FS) debacle. As fund houses tightened refinancing for infrastructure projects, the recent stock price fall was due to reports of a link between the Essel group and a firm Nityank Infrapower (formerly Dreamline Manpower) which is under investigation by the Serious Fraud Investigation Office (SFIO) for alleged deposits made just after demonetisation in November 2016. This prompted the group’s chairman Subhash Chandra to emotionally appease his lenders, especially those who gave loans against shares, and assured them that the group would repay its debts by sale of its stocks in well performing listed companies, including in Zee.
The Essel group has an overall debt of around Rs 20,000 crore and Chandra, a Rajya Sabha MP, is set to sell his stakes in Zee to settle these.
The Paradise Papers
In fact, this is not the first time the Essel group’s “murky” transactions with shell companies are making news. Remember Paradise Papers leak in 2017.
On November 7, 2017, Indian Express reported: “Through a complex web of transactions, offshore companies of the Essel Group, promoted by Subhash Chandra, raised funds to repay debt and finance Veria Lifestyles, a venture he owns outside the Zee umbrella, by pledging promoter shares of Zee Entertainment Enterprises Limited (ZEEL), Appleby records show.” The report states that the group raised a $62-million loan from Credit Suisse “to finance existing offshore promoter debt” in 2013. The loan, as the report states, was “indirectly backed by 46 million fully paid up equity shares” of Zee held by Essel Holdings Limited (EHL), making prepayment necessary “upon fall in stock price of Zee by more than 40% since inception”.
Furthermore, the report stated that Zee did not even disclose to the Bombay Stock Exchange regarding the pledging of those 46 million shares in 2013. When the news came out, Zee did not come forward with any explanation in this regard.
However, last Friday, February 1, Credit Suisse sold part of Zee-pledged shares worth crores, as per stock exchange data, days after Zee tasted a fall in its stocks. As this sale is in accordance with the leaked Appleby records, several questions remained unanswered?
Why was information regarding Zee’s pledged shares with Credit Suisse not disclosed to BSE in 2013?
Is Credit Suisse also part of the group of lenders who agreed to give Essel group extra time to repay debts?
Has Essel group raised $62 million from Credit Suisse in 2013 through the pledged shares’ route. If so, the repayable amount would exceed hundreds of crores. Why did Credit Suisse sell only part of the pledged shares?
What is the nature of agreement that Essel reached with its lenders?
As per reports, in December-end 2018, the Essel group promoters pledged their stakes worth Rs 15,227 crore in the group's listed companies, accounting for 59.1% of the promoter’s stake in the group companies.
Between January 25 to February 1, apart from Credit Suisse, other lenders - Bank of Baroda, M Financial Products Ltd., Catalyst Trusteeship Ltd., IIFL Wealth and Hero Fincorp and STCI Finance, sold pledged shares of the Essel group’s promoters.
According to BloombergQuint, lenders sold nearly 2.43 crore shares of Zee (worth over Rs 1,000 crore), bringing down promoter holding by more than 2% to 39.08% from 41.6%, in less than a month.
With the impending crisis, on February 6, the group shut down its recently launched Daily News and Analysis, Delhi edition.
Consider this: If the lenders sell their pledged shares in Zee, its promoters’ holdings will come down by 20%, which the group tried to prevent with its latest agreement with lenders.
Also Read : Zee Sale: An After Effect of IL&FS Fiasco