Home / Companies / News /  Lenders eye Subhash Chandra's non-compete windfall

MUMBAI : Financial creditors of Essel group may ask chairman Subhash Chandra to settle their dues with the 1,100 crore non-compete fee that he stands to receive from Sony Group, three people aware of the matter said. If Chandra refuses to pay, some of Essel’s banks and non-banking financial companies plan to oppose a company court approving the proposed Zee-Sony merger, the people said on condition of anonymity.

IndusInd Bank, Axis Finance, Yes Bank and Jammu and Kashmir Bank are among the top lenders that have given loans to several privately held firms controlled by Chandra. Some of these loans were backed by Chandra’s personal guarantees, the people cited above said.

“Lenders can move a petition (before the National Company Law Tribunal) saying the non-compete money which the promoters are getting, that money should be utilized to repay lenders. But to stop the transaction between Zee and Sony is difficult," said one of the people cited above, who works with one of Essel’s NBFC creditors. “If one creditor moves the court, others will also move. While creditors hold different securities, in most of the cases, security value has come down," he added.

“Banks may seek an escrow-type of arrangement in which the non-compete payment paid by Sony to the promoters be deposited in the account and used to repay the banks," said the second person, an executive with IndusInd Bank.

On 18 January, Mint reported that an Axis Bank subsidiary had sent a legal notice to Zee and its promoters last month demanding repayment of 146 crore. Axis Finance said it would oppose the Zee-Sony merger if Chandra and son Puneet Goenka failed to repay the dues as promised.

A spokesperson for Subhash Chandra said lender-related disputes would have no bearing on the Zee-Sony merger. “Essel Promoters have been settling the debt to their lenders since January 2019 and have sold off their stakes across businesses to ensure the same. While there have been agreed settlements with a few, there are disputes pending with select lender(s) at various legal forums. We do not comment on the details of the same as these are confidential bilateral matters. Any such promoter borrowing arrangements do not have any linkages with Zee Entertainment, and therefore any such frivolous proposed actions against Zee Sony merger."

According to the investment agreement between Zee Entertainment and Sony Group, SPE Mauritius—a Sony group firm—will pay about 1,100 crore to Essel Mauritius, a promoter entity of Essel group. The Zee founders will use the funds to raise their stake in the merged entity by about 2%. Essel Group will infuse this liquidity in Zee Entertainment at 300 per share. On Friday, shares of Zee Entertainment fell 6.21% to 289.40 on BSE.

IndusInd Bank and Yes Bank are separately fighting Zee over non-repayment of dues in various high courts. These lenders hold various securities, including shares of Zee or Dish TV or letters of comfort against the loans given to Chandra.

Spokespeople for Zee Entertainment, Yes Bank, L&T Finance, Clix Capital, IndusInd Bank, Axis Finance and J&K Bank declined to comment.

“When the value of the security held by creditors crashed three years ago, Chandra, in an open meeting, had agreed to give his personal guarantee. The minutes are recorded," said the executive from the NBFC.

On 22 December, Zee and Sony jointly announced that they had completed a due diligence process conducted over three months, as the first part of merging the two giants to create the country’s largest listed media and entertainment company. Interestingly, as per their agreement, Sony will pay this non-compete fee to Essel Mauritius, an overseas subsidiary.

Zee is securing approvals from regulators, including the information and broadcasting ministry and Competition Commission of India, before formally approaching NCLT.

“The only way to seek our dues is now to petition before NCLT to not approve of the merger until our dues are cleared," said an executive from Yes Bank, who also spoke on condition of anonymity. “We will wait for the merger to come before NCLT, and then we will file a petition."

Creditors’ move to recover loans to Essel Group entities puts a spotlight on Chandra’s claim last year that he had paid 91.2% of his financial creditors.

“I am happy to report that we have come out of the financial stress situation by settling 91.2% of our total debt to 43 lenders in 110 accounts," Chandra wrote in his second open letter dated 3 August 2021. “88.3% amount has been paid, while the remaining 2.9% is in the process of being paid. We are making all the required efforts to settle the remaining 8.8% of our total debt. I have no regrets for parting with substantial ownership in the business and specially in the ‘jewels of the crown’. This was done to keep the family’s honour," he wrote.

“Unfortunately, there could be one case (one lender), where there are disputes and both sides seem fixated on their belief on the number of debt(s) claimed and payable. The difference in numbers, in this case, is huge. The issues are pending in the court(s) for determination," wrote Chandra.

The unnamed lender, it turns out, is Yes Bank, which is trying to oust Chandra’s younger brother, Jawahar Goel, from Dish TV India Ltd, as Chandra’s borrowings from Yes Bank were backed by shares of the satellite TV firm. As Chandra and Essel Group could not service the loan, Yes Bank invoked the pledged shares and became the largest shareholder in Dish TV.

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