Subash Chandra-led Essel Group is trembling on the stock market as investors worried over the group’s fate—which could not meet debt obligations to its consortium of lenders with just 10 more days left before the deadline.
In February this year, the group signed a standstill agreement with Mutual Funds (MF) and Non Banking Financial Companies (NBFCs), and accordingly, the lenders agreed not to sell any Group shares pledged with them as Essel promoters assured to make repayments by the end of September.
At that time, the Group claimed that the agreement covered more than 90% of the loans pledged against their shares. However, so far, of the total Rs 7500 dues to these lenders, the Group repaid only Rs 3,356 crore of them. That is, more than half the amount was not paid as per the agreement.
Here’s how the performance of the Group’s crown Zee Entertainment Enterprises Ltd fell since last year. Zee's equity share price was recorded as Rs 603 in April 2018 which came down to Rs 489 in March 2019. Following the continued downfall, the price further came down to Rs 306, as on September 20, 2019. The share price had fallen to an all-time low of Rs 272 per share recently.
According to several news reports, it is emerging that the Group is now mulling asking for another six-months to the lenders to clear dues, but lenders seem uncertain for several reasons. Among the MFs which signed the agreement include Aditya Birla Sun Life Mutual Fund, HDFC Mutual Fund, Kotak Mutual Fund and ICICI Prudential Mutual Fund.
Reports also suggest that MFs are divided over extending the deadline, as it is not clear how would the market regulator Securities Exchange Board of India (SEBI) would react in the matter. Earlier, the SEBI had raised concerns over such standstill agreements and had asked MFs involved to respond.
However, experts argue that the regulator has to intervene in case of any disagreement among the lenders. Ashvin Parekh, managing partner, Ashvin Parekh Advisory, told ETNOW that if MFs disagree among them, “the regulator may have to step in to resolve this because then it takes a different dimension altogether”.
In July, the Group agreed to sell an 11% stake in ZEE for Rs 4,224 crore to Invesco Oppenheimer Developing Markets Fund. Subsequently, earlier this month, the sale of 8.7% stake was concluded which amount was used to make the above mentioned repayments. On August 30, Essel group said it would sell 205 MW of its operational solar energy assets—Essel Green Energy and Essel Infraprojects—to Adani Green Energy Ltd at an enterprise value of Rs 1,300 crore.
As of December 2018, the total outstanding debt of the Group was recorded as Rs 16,237 crore including those of banks, MFs and NBFCs.
Subash Chandra was under pressure to sign the standstill agreement predominantly to retain his well performing entertainment conglomerate Zee, as it was then at the risk of moving out of his hands as several lenders, including Credit Suisse, sold part of the promoters’ shares in Zee worth over Rs 1,000 crore that were pledged with them. Preceding this, stock prices of Zee and another group company Dish TV fell by 26% and 33%, after reports linked Group transactions with a company under probe by Serious Fraud Investigation Office, for alleged massive deposits made just after the demonetisation in 2016.
As of the June quarter, filings with BSE indicate that 64% of the promoter holdings in Zee were pledged.