Mumbai: Media baron Subhash Chandra may lose control of Zee Entertainment Enterprises Ltd (ZEEL) as a clutch of asset managers, non-bank lenders and foreign portfolio investors, which had extended loans to Zee’s promoter group companies against share pledges, plans to put their pledged shares in an escrow account in preparation for a sale, according to three people familiar with the development.
The lenders to Chandra’s cash-starved Essel Group firms (which are promoters of Zee) have already initiated discussions with potential bidders, including strategic investors, to sell off the entire bulk of pledged shares, the people said, requesting anonymity.
“Large investors such as Sony Corp. and Rupert Murdoch’s News Corp. group have evinced interest to buy Zee’s shares that are to be put up for sale in the escrow account. The escrow account will be created early this week and the bidding will start thereafter," said one of the three people.
This is the second lot of lenders to initiate a process for sale of Chandra’s stake in ZEEL. Russian financial institution VTB Capital has also kick-started the process of selling 10.71% in the media company. Mint first reported on 15 October that VTB had initiated talks to sell the stake.
The second set of lenders is expected to transfer another 10.77% to the escrow account. It is not known whether the sale process of both VTB Capital and the second consortium—comprising AMCs, NBFCs and FPIs—will be conducted independently or are likely to be integrated in the future to derive better value from a consolidated offer.
A ZEEL spokesperson told Mint: “In its endeavour to seamlessly distribute the sale proceeds to all lenders, Essel Group has appointed credible investment bankers to lead the divestment process. Essel Group is in a constant process of evaluating proposals from the prospective partners and is in a steady dialogue with all the lenders, including VTB Capital Plc to collectively arrive at the best resolution.
“Essel Group cannot comment on the finer aspects of the prospective deal at this stage. As of now, the promoters of Essel Group own 22% shares in ZEE Entertainment Enterprises Ltd. ZEEL’s shareholding is widely held by credible foreign and domestic institutions that believe in the strength of the existing management in running the company, which we believe does not expose the company to any such risk."
Chandra’s Essel Group companies hold a 22.37% promoter stake in Zee. Of this, 21.48% has been pledged as collateral against finances availed by Essel Group firms through issuance of non-convertible debentures (NCDs). At the current volume-weighted-average price, typically used as a yardstick in such share sales, these pledged shares are worth ₹6,187 crore.
If the entire pledged holding is sold off, Chandra will be left with 0.89% stake in Zee.
“VTB Capital has appointed JP Morgan and Citigroup Global Markets as bankers to shortlist a buyer for the shares pledged by Zee promoters. Other lenders such as mutual funds and NBFCs have waited long enough to recover their dues," the second person said. “Essel Group had told these lenders that they will bring in enough money to revoke the pledges. So far, they haven’t been able to do so."
VTB Capital, the investment management arm of Russia-based state-run financial services giant VTB Group, on 15 October said it has obtained certain lender protection rights in Essel Media Ventures Ltd and has secured the right to potentially monetize 10.71% stake in ZEEL held by Essel Media.
VTB Capital is just the security agent acting on behalf of VTB Bank (Europe) SE, Austria branch LLC, VTB Capital Holding IB and VTB Bank (Europe), which are lenders to Essel Media. These lenders gave loans to Essel Media in September 2017 against shares of Zee (held by Essel Media) as collateral.
VTB Capital had mentioned that it was hoping to reach a satisfactory resolution with the promoters and will willingly cease all enforcement action and release the encumbrances (pledged shares of Essel Media in Zee) upon repayment of the amounts outstanding under the loan facility.
Essel Group has not been able to honour the repayment, forcing VTB Capital to sell the pledged Zee shares.
Promoters of Essel Group have a debt of around ₹11,000 crore. Essel Group companies together owe an additional ₹11,400 crore, according to a 5 October Mint report.