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Zee Sale: An After Effect of IL&FS Fiasco

Short term borrowings for funding long term assets is now a failed strategy for businessmen in India.
Zee Sale: An After Effect of IL&FS Fiasco

Image for representational use only; Image Courtesy : NDTV

The cascading effect of the collapse of the Infrastructure Leasing and Financial Services (IL&FS) group which began in September last year has made the Indian markets fragile for some months now. While the crisis at Essel group is evidently one of the after effects of the IL&FS bankruptcy, financial experts are predicting that more such cases are yet to emerge.

The defaults of Essel group has prompted its chairman Subhash Chandra to sell half of his shares of his well performing Zee Entertainment Enterprises. Chandra, who controls 41 per cent shares in Zee, had recently acknowledged that over leveraged bets in infrastructure industries burdened Essel group forcing him to “sell the jewel of his crown”. In an open letter on January 25, Chandra claimed, “The IL&FS meltdown stopped the roll overs, diminishing our ability to service our borrowings.”

BloombergQuint estimated the debt load of Essel group at Rs. 17,000 crore across 87 operating companies as of March 31, 2017.

Also Read: Fantastic Beasts of The IL&FS Zoo

After the crisis at IL&FS came to light, one major strategy of billionaires- which had helped them garner multiple debts to boost their businesses in India’s markets- is failing them now, as fund houses have tightened refinancing conditions. The strategy was this: borrowing short-term funds for long term assets such as infrastructure projects, simultaneously managing the borrowings. For instance, the crisis at Sun Pharmaceutical Industries, as experts argue, was due to its founder Dilip Shanghvi’s over leveraging for projects such as “apartment complexes and windmills”.

Zee Sale

Promoters of Essel group have recently announced that the group "arrived at an understanding" with its lenders, on the matter of debt repayment, as its owners are set to sell their shares of Zee.

As Zee is a key player in India’s traditional television market and its digital app Zee5 is fast growing, several corporate giants are showing more interest in its bidding.  As per reports, Amazon, Apple, Tencent Holdings, AT&T, Singapore Telecommunications, Comcast Corp, Sony Pictures Entertainment and Mukesh Ambani’s Reliance Jio Infocomm are eyeing the 24 per cent stakes in Zee put forward for sale by Chandra.

Another 40 per cent shareholdings are held by foreign portfolio investors such as Oppenheimer Developing Markets Fund, Vanguard International Growth Fund, Virtus Vontobel Emerging Markets Opportunities Fund, Government of Singapore and Kuwait Investment Authority.

Considering the demand for digital video in India, Zee which has an enterprise value of over Rs. 3,400 crore ($4.8 billion) and about 35 % Ebitda margins, experts opine that it has a good chance to take on HotStar, Netflix and Amazon Prime Videos.

Read More: IL&FS: Not Satyam, Not Lehman, Maybe it’s Both!

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