“Negative forces have attacked the price, with an intention of sabotaging ZEE Entertainment’s sale process,” says Chandra
“The debt burden is purely at the promoter level, which is reflecting negatively on the companies,” wrote Chandra
NEW DELHI :
Zee and Essel Group chairman Subhash Chandra blamed unnamed “negative forces" but also admitted to making bad investments and incorrect bids after nearly $2 billion was wiped off the Zee Group stocks on Friday following media reports of a government probe into alleged post-demonetization cash transactions involving entities related to Essel Group.
Chandra, however, said in an open letter that all operating companies, especially Zee Entertainment, are “performing exceptionally well and are under no stress whatsoever".
“The debt burden is purely at the promoter level, which is reflecting negatively on the companies," he said.
In his two-page note, Chandra apologized to his bankers, non-banking financial companies and mutual funds, “since I believe that I have not lived up to their expectations, despite the best of my intentions". Chandra said he is a rare promoter who plans to sell “the jewel of his crown" to pay off the liabilities. “While the process is still ongoing, there are some forces that are not willing to see us succeed."
Chandra said he had given his best to speed up the stake sale of Zee Entertainment and had returned from London on Thursday night after a series of “positive meetings" with potential suitors. However, he held “negative forces" responsible for the fall in stock prices. “Negative forces", possibly after getting a hint of these positive meetings, attacked the share price to sabotage Zee Entertainment’s strategic sale process, he said.
Chandra’s statement came after shares of Zee Entertainment Enterprises Ltd slumped more than 26%, its biggest single-day fall since listing in 1993, to close at ₹319.35 a share. It lost nearly ₹11,000 crore in market value. Ironically, on 15 January, Zee Entertainment reported strong December quarter earnings with revenue rising 18% to ₹2,167 crore on account of a 22% year-on-year jump in advertising revenue. Net profit rose 50.6% to ₹562.80 crore. The company’s Ebitda (earnings before interest, tax, depreciation and amortization) margin was up 300 basis points to 35%, from 32% a year ago. A basis point is a hundredth of a percentage point.
Other Zee group companies also came in for selling pressure. Zee Learn ended at ₹27.55 on the Bombay Stock Exchange, down 18.5%, erasing ₹200 crore of market value. Zee Media Corporation Ltd fell 9% to ₹22.10 while its market capitalization fell by ₹1,000 crore. Essel Propack Ltd dropped 16% to ₹98.10 and eroded nearly ₹600 crore of market capitalization. Dish TV India Ltd sank 33% to ₹22.60, erasing nearly ₹2,000 crore from its market value.
A media analyst, who declined to be named, said that after the controversy and the fall in stock prices, Zee Entertainment Enterprises Ltd (ZEEL) may face issues with international buyers interested in the company. “Foreign buyers like to keep away from controversies and Zee may find that its pool of potential buyers had shrunk, affecting the prospects for ZEEL."
According to news website The Wire, the Serious Fraud Investigation Office or SFIO is probing Nityank Infrapower, formerly Dreamline Manpower Solutions, for allegedly making ₹3,000 crore in deposits soon after the November 2016 decision by the Narendra Modi government to ban high-value currency notes.
Jawahar Goel, chairman of Dish TV India Ltd, clarified to ET Now television channel that the Essel Group has nothing to do with the investigative agency’s probe into alleged deposit of funds. The group has given details of funds deposited by distributors into its accounts to the income-tax department, Goel said.
“The company is unaware of the news item referred in your letter or its source or factual correctness of the information contained therein (Essel Group probe)," Zee Entertainment clarified to exchanges.
Bloomberg contributed this story.
What went wrong for Zee, in Subhash Chandra’s words
In an open letter, Zee and Essel Group chairman Subhash Chandra listed six things that have gone wrong. Excerpts from the letter:
1 ESSEL INFRA: As most of the infra companies, even we have made some incorrect bids. In usual cases, infra companies have raised their hands and have left their lenders with non-performing assets, but in our case, my obsession of not walking away from the situation, has made me to bleed ₹4,000 crore to ₹5,000 crore. Despite the loss making projects, we continued to pay the interest and the principle, by borrowing funds against our shareholdings in listed companies.
2 ACQUISITION OF D2H: My recommendation made to my brother Jawahar Goel to buy D2H from Videocon was one more key error, which cost me and Jawahar both, a fortune.
3 When our family business separation was implemented, as the eldest member of the family, I had taken the entire burden of the debts. I believe, it was my mistake to have told myself that “Subhash you can earn and repay the creditors". Most of my bets on the new businesses have not worked, which led to the increased debt, because of the added interest levels.
4 The situation at hand, became further unmanageable after the IL&FS issue, came to public light. Till then, we were managing our borrowings efficiently. The IL&FS meltdown stopped the roll overs, diminishing our ability to service our borrowings.
5 From May/June 2018 onwards a negative force was acting against our grip as promoters became strongly active. This was followed by some anonymous letters being sent to all bankers, NBFCs, mutual funds, and shareholders.
6 Whenever we have reported some really good results from the operating companies, the share prices were intentionally hammered by these negative forces, driving away the investors.