Breather for Essel as lenders give six more months to clear its debt3 min read . Updated: 19 Sep 2019, 11:13 PM IST
- A February deal to extend the repayment deadline had been criticized by Sebi and investors
- The Essel group has embarked on sales of non-media assets, particularly those housed under Essel Infra
Mumbai: Essel Group chairman Subhash Chandra has secured a six-month extension from lenders to repay debt given its inability to pay back more than half of its dues by 30 September as agreed earlier, a mutual fund executive familiar with the details said.
A standstill agreement with mutual funds and non-bank lenders that was inked in February has now been extended to 31 March, the person said on condition of anonymity.
As part of the initial agreement, Essel group had agreed to sell assets to repay all dues to lenders by the September deadline.
In return, the lenders agreed not to sell pledged shares of the group’s flagship Zee Entertainment Enterprises Ltd (ZEEL). Essel owed a total of ₹7,500 crore to the lenders but has since repaid ₹3,356 crore to them.
The agreement to extend the repayment deadline in February had faced criticism from investors and the markets regulator. Securities and Exchange Board of India (Sebi) chairman Ajay Tyagi on 28 June said the regulator “does not recognize" standstill agreements.
Sebi has initiated adjudication proceedings against two fund houses—HDFC Asset Management and Kotak which had fixed maturity plans (FMPs)—that held Essel papers.
HDFC Mutual Fund had rolled over its FMP and Kotak Mutual Fund had held back some units in lieu of the Essel exposure.
Subsequently, HDFC AMC transferred the Essel debt in the affected FMPs which were maturing before 30 September to its own books.
“It is unclear whether the funds will recover the principal and interest even after six months. Sebi has so far taken only limited action in addressing bad debt with the side pocketing rules. I think the regulator needs to be more proactive in resolving this matter," said Shriram Subramanian, managing director, InGovern Research Services, a corporate governance advisory firm.
An official spokesperson for Essel group said: “The Essel Group is in constant dialogue with the consortium of lenders. The overall asset divestment approach is in steady progress and the group remains focused on the repayment process. All decisions taken in this process so far have been in the interest of the lenders and have only been implemented after their consent."
In July, the Essel group agreed to sell an 11% stake in ZEEL for ₹4,224 crore to Invesco Oppenheimer Developing Markets Fund. Earlier this month, the sale of 8.7% stake was concluded, and the group repaid ₹3,356 crore to mutual funds from the proceeds. The group said at the time that it is confident of completing the balance sale of 2.3% stake soon.
Executives at Aditya Birla Sun Life Mutual Fund, HDFC Mutual Fund, Kotak Mutual Fund and ICICI Prudential Mutual Fund, who are all lenders to Essel and are part of the standstill agreement, did not respond to calls and texts from Mint about this matter.
“Investors in schemes with more than 1-2% exposure to troubled groups like Essel should exit. We have followed this rule for our clients. However, investors should take exit load and tax implications into account while redeeming their investments," said Suresh Sadagopan, founder of Ladder7 Financial Advisories.
The Essel group has also embarked on sales of its non-media assets, particularly those housed under Essel Infrastructure.
On 30 August, Essel group said it would sell 205MW of its operational solar energy assets to Adani Green Energy Ltd at an enterprise value of ₹1,300 crore. The company is also in talks with buyers to sell the rest of its renewable energy portfolio, a part of its highways portfolio and its mutual fund and finance businesses. However, none of these deals have so far been finalized.
On Thursday, The Economic Times reported that an arbitrator appointed by the Delhi high court has asked Subhash Chandra not to sell his unpledged stake in ZEEL till 16 October as part of arbitration proceedings between Chandra and Indiabulls Housing Finance.
In response to Mint’s query on whether this would hinder the Zee stake sale, the Essel spokesperson said: “The group wishes to confirm that the arbitration proceedings between Essel Group and Indiabulls Housing Finance do not have any bearing on the ongoing stake sale of ZEEL as shares being divested are pledged with the mutual funds / NBFCs / banks."