Punit Goenka, CEO of Zee Entertainment Enterprises (ZEEL), said on Saturday that over 90% of the promoter holding in the company has been pledged. Goenka was addressing analysts following a disclosure made by VTB Capital on Friday "…in respect of creation of encumbrances over the shares of Zee Entertainment Enterprises, held by Essel Media Ventures Limited." There is also a possibility that the promoters of Zee Entertainment may have to sell their entire stake to repay debt.
In a bid to bring down debt, the promoter group is open to selling a majority stake in the flagship company. Goenka also said the promoters' stake in the company stood at 22%, and that the management was doing everything to repay the outstanding debt of Rs 7,000 crore. Goenka said, "Even if left with single-digit holding, I will be willing to work with the company if due process allows it." Goenka did not rule out the possibility of promoters having to sell their entire stake in Zee Entertainment if required to pay lenders.
Shares of Zee Entertainment Enterprises (ZEEL) have fallen by nearly 50% since January this year amid piling debt woes of the Subhash Chandra-led Essel Group. The current outstanding of the Essel Group is at Rs 7,000 crore (loan against shares) while the value of the promoter group's stake is valued at Rs 5,000 crore. When asked how the Essel Group proposed to reduce debt given the challenging environment and delay in the sale of non-media assets, Goenka said, "We are looking at all problems. Whatever stake promoters are left with, I am committed to the company. If process allows, I will continue to run the company. We are looking to resolve this in three months." Goenka also expressed hope that the lenders would continue to support the management in the long-term interest of the company.
While some of the lenders to Essel Group in India may have agreed to a standstill, it is not clear whether VTB Capital has also agreed to a similar arrangement and nor was it clear if its covenants had been breached too. Commenting on the indirect pledge that VTB Capital had on its shares, Goenka said the pledging was not a direct one. But with Sebi's new norms on such disclosures, Goenka added that these disclosures were made. Interestingly, VTB Capital can invoke and sell shares in Zee Entertainment like some other lenders have done if its covenants are breached, even if maturity was a year away. He did not confirm if the covenants had been breached for VTB Capital. Goenka told analysts, "After one year, they can sell shares directly. VTB is a long-term investor and have supported the promoters and I hope they will work in the same way." Any possible top-up on the existing pledge was also ruled out by Goenka on Saturday.
Several mutual fund houses have held the shares of ZEE as collateral against their exposure to the Essel Group. In a bid to pay back lenders by the September 30 deadline, promoters were to sell up to 11% of their holdings in ZEEL to US-based Invesco Oppenheimer Developing Markets Fund. In the first tranche of the stake sale, Essel group has sold 8.7% of its holdings to the fund. However, as the company hit an insider trading window, the remaining stake sale could not go through by September 30, explained Goenka.
However, even after the stake sale to Invesco Oppenheimer amounting to nearly Rs 4,000 crore, the Essel group could not pay back its loan amount by the September 30 deadline, which led to certain mutual funds to sell the pledged shares. Essel Group’s domestic debt stands at Rs 5,000 crore and offshore debt stands at Rs 2,000 crore.