Over 90 percent of promoter stake in Zee Entertainment Enterprises Ltd. has been pledged to raise debt, the company revealed in an analyst call today.
The call follows a stock exchange filing made by Zee Entertainment Ltd. on Oct. 4, disclosing a 2017 loan agreement with Russia’s VTB Capital. Essel Media Ventures Ltd., an entity owned by Subhash Chandra’s Essel Group, the promoter of Zee Entertainment, had raised an as yet undisclosed amount from VTB Capital against 10.2 crore shares (10.71 percent) of the broadcaster, the filing said.
VTB Capital was acting as the security agent on behalf of certain Zee lenders, namely VTB Bank (Europe) SE, Austria Brance, LLC VTB Capital Holding IB and VTB Bank (Europe) SE, according to the filing.
In the analyst call, Chandra’s son Punit Goenka, managing director and chief executive at Zee Entertainment, said the current promoter shareholding in the broadcaster stands at about 22 percent and 90 percent of that is encumbered or pledged.
This is in contrast to June-end data filed by the company in which promoter shareholding was 35.8 percent, of which 64 percent had been pledged.
The increase in pledged shares is on account of new Securities and Exchange Board of India norms that came into effect on Oct. 1. Ordinarily, a promoter has to disclose details of share pledges or any invocation or release of such pledge or encumbrance within seven days. But the new norms require disclosure of detailed reasons for encumbrance if the shares pledged equal or exceed 50 percent of the total promoter holding (including shares owned by persons acting in concert) or 20 percent of the total share capital of the company. Any increase of encumbrance over these thresholds also warrants disclosure. SEBI also recently amended the definition of ‘encumbrance’ to include direct and indirect pledges.
It is these regulatory changes that prompted Zee Entertainment to disclose the pledge arrangement with VTB Capital and reveal that most of the promoter’s shares in the company now stand encumbered.
VTB Capital can potentially invoke shares of the promoter group in lieu of debt obligations, Goenka said to analysts. The maturity of loans from VTB Capital is still a year away, he added.
The fresh disclosure does not increase total debt obligations of the promoter group which currently stand at about Rs 7,000 crore, he clarified. Of this Rs 5,000 crore is domestic debt and the remaining is owed to overseas entities.
Zee Stake Sale To Be Completed After Earnings
Analysts also asked Goenka with regards to the completion of the Zee Entertainment stake to Oppenheimer Funds. In August, Essel Group announced an agreement to sell up to 11 percent stake in Zee Entertainment to Invesco Oppenheimer for Rs 4,224 crore. Goenka said due to the ongoing silent period, sale of about 2.3 percent was yet to be concluded and would be executed once the quarterly results are declared.
Faced with high debt raised to fund private promoter entities’ infrastructure businesses, Chandra’s Essel Group has been working to sell assets to deleverage. Much of this debt was raised from mutual funds and non-banking finance companies by pledging shares owned by the Essel Group in Zee and other listed companies. That VTB entities were among the lenders was not known so far.
Earlier this year, several lenders had agreed to a standstill on debt servicing and repayment as well sale of pledged shares to give Essel Group time to monetise assets and repay the loans. That standstill was to end in September but some lenders agreed to a six-month extension as the Essel Group has serviced nearly half its liabilities.
So far it has repaid Rs 4,450 crore via sale of Zee Entertainment stake and some solar power assets, with Rs 5,500 crore still outstanding.―Bloomberg Quint