Zee Entertainment Enterprises Ltd. can pay its wholly owned subsidiary money to purchase a division. The cash will then discover its means again to the broadcaster because the subsidiary will redeem bonds issued to the dad or mum.
The broadcaster can pay Zee Studio Ltd. (erstwhile Essel Vision Productions Ltd., a 100% subsidiary) Rs 275 crore to accumulate its movie manufacturing and distribution enterprise by droop sale (as a complete with out assigning worth to belongings), the corporate stated in an trade submitting on Thursday. It expects the sale to be accomplished in two months.
The transaction has the approval of the board and although it’s a associated occasion transaction, as a result of it’s with a completely owned subsidiary it doesn’t require any shareholder approval.
To be certain, the regulation doesn’t disallow such transactions. Yet, paying money to a subsidiary for a division that’s already consolidated within the purchaser’s steadiness sheet is uncommon. More in order Zee has not supplied any clear public rationalization for the transaction or use of money by the subsidiary.
The acquisition has been executed to attain operational efficiencies, to simplify the general construction and is in step with the corporate’s development technique, Zee Entertainment spokesperson stated in an emailed response to BloombergQuint’s queries. The movie manufacturing and distribution enterprise will probably be acquired at a e book worth of Rs 275 crore, topic to working capital changes on the date of switch.
The acquired enterprise division has a powerful film library (beneath manufacturing), which will probably be transferred to the dad or mum as a part of the deal, stated the spokesperson, with out elaborating on the scale of the library.
The enterprise division in query did a income of Rs 124 crore in fiscal 2019-20, decrease than the Rs 299 crore in FY19 and Rs 166 crore in FY18.
While the transaction worth is comparatively small in comparison with Zee Entertainment’s measurement and should not have a fabric affect on the consolidated monetary statements, money is flowing from the holding firm to a completely owned subsidiary, stated Hetal Dalal, president and chief working officer at Institutional Investors Advisory Services.
It is among the largest subsidiaries of Zee. In the 12 months ended March 2020:
- Revenue from operations stood at Rs 467.3 crore—excluding different revenue of Rs 154.30 crore and revenue after tax of Rs 155.30 crore.
- The firm has belongings price Rs 719.20 crore and liabilities of Rs 569 crore.
- Assets embody inventories of Rs 324.97 crore and borrowings of Rs 280.37 crore.
- The firm has money and money equal of Rs 2.2 crore on the finish of March 2020.
Why Is Zee Buying Its Own Business?
Debenture RedemptionWhile Zee made no public disclosure about this, BloombergQuint discovered that the money obtained by Zee Studios will probably be used to partially redeem optionally convertible debentures (OCDs) issued to dad or mum Zee Entertainment. The firm spokesperson confirmed this in response to BloombergQuint’s queries.
Zee Studios had raised an unsecured mortgage of Rs 522.36 crore in 2019 from Zee Entertainment by issuing of 522.36 crore 0% OCDs of Re 1 every.
The honest worth of those monetary devices declined Rs 150 crore by March 2020 to Rs 439.52 crore, in response to the steadiness sheet of Zee Studios. Adjusted for present liabilities, the excellent worth of those OCDs stood at Rs 280.14 crore on the finish of March.
Zee had the choice to transform or redeem Series-I of the OCDs price Rs 167 crore as on Sept. 10. As per the phrases, they had been to be transformed at a worth of Rs 30 apiece or redeemed. Zee will probably be redeeming these OCDs.
The remaining set of OCDs price Rs 161 crore and Rs 194.36 crore are to be redeemed In February and November 2022.
The movie enterprise acquisition will cut back the OCDs payable by the subsidiary to the (dad or mum) firm, stated the corporate spokesperson.
In a nutshell, Zee is buying a enterprise it already owns, albeit not directly through a completely owned subsidiary, in order that the subsidiary can repay the mortgage it took from its dad or mum. Bloomberg Quint