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Does Subhash Chandra Need A Commercial Break?  

Did debt prompt Zee Entertainment promoters to consider selling half their stake?

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Finding a strategic partner that can help Zee Entertainment Enterprises Ltd become a global media-tech player is the key reason media baron Subhash Chandra and his family are looking to sell half their stake in the flagship entertainment media company. Or so they said.

A BloombergQuint investigation finds that such a sale may be inevitable given the approximately Rs 17,000-crore total debt raised by 15 investment arms and 88 operating companies of Chandra’s promoter group — the Essel Group.

Besides its investments in media companies, many public listed, the promoter group has over 100 privately held subsidiaries and affiliates with varied business interests, including road, urban infrastructure, power, water management and solid waste management projects.

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Many of these non-media businesses are loss-making, raising concerns about the group’s ability to repay debt.

But the Essel Group denies that. In a statement to BloombergQuint, the group spokesperson reiterated that the decision to divest up to half of the promoters’ shareholding in the media group to a global strategic partner has been initiated to transform Zee into a “content and technology company” and is not linked to debt repayment of the group. The group, the spokesperson said, is in an advanced stage of divestment of its infra business that will help to pare the group’s debt substantially.

Here’s what’s at stake.

Did debt prompt Zee Entertainment promoters to consider selling half their stake?
Debt raised by the Zee group and its promoter entities.
(Photo: BloombergQuint)
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The Debt Burden

Since there is no consolidated debt number readily available for the Essel Group’s privately held non-media businesses, BloombergQuint examined filings with the Registrar of Companies and Ministry of Corporate Affairs to ascertain the size of the loan burden.

Via Pledged Shares

Essel Group owns a 41.62 percent stake in Zee Entertainment Enterprises, valued at Rs 19,084 crore as on 5 December. Similarly, it owns large stakes in Dish TV Ltd, Zee Media Corp Ltd, Siti Networks Ltd and other listed companies.

Like two promoter entities, Cyquator Media Services Pvt Ltd and Essel Corporate LLP, which have pledged more than 83 percent of their Zee shares, many other promoter entities have also pledged shares to enable the 15 investment companies to raise loans.

Essel Group's Pledged Shares

Did debt prompt Zee Entertainment promoters to consider selling half their stake?
Essel Group’s pledged shares.
(Photo: BloombergQuint)

As of September 2018, the promoter group had pledged total shares worth Rs 17,449 crore against which the 15 investment entities have raised total debt of Rs 7,689 crore as of March 2017, as per their MCA filings. FY18 filings are not available on the MCA site.

Other Loans

The 15 investment companies funded the 87 operating companies via debentures and unsecured loans and in small amount equity.

As per MCA data, the total debt of these 87 operating companies was Rs 16,889 crore as of March 2017. That suggests that besides the funding provided by the investment entities, the operating companies also secured approximately Rs 9,200-crore debt through hypothecation of current and future assets.

Loss-Making

The 15 investment companies in the Essel Group made a total loss of Rs 666 crore against a revenue of Rs 796 crore as of March 2017 data.

Of the 87 operating companies, 84 had total assets of nearly Rs 16,000 crore generating total income of Rs 1,589 crore and losses of Rs 360 crore.

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How They Fared

Did debt prompt Zee Entertainment promoters to consider selling half their stake?
Financials of Essel Group businesses
(Photo: BloombergQuint)

The group is also in the business of engineering, procurement and construction through three private entities. Two of these three were loss making as of March 2017. The EPC business as a whole made a Rs 42-crore loss that year.

Essel Group's EPC Business

Did debt prompt Zee Entertainment promoters to consider selling half their stake?
Essel groups EPC business
(Photo: BloombergQuint)

Thus, as per FY17 data, the 87 operating companies had debt of Rs 16,889 crore, whereas the total losses amounted to Rs 402 crore.

Did debt prompt Zee Entertainment promoters to consider selling half their stake?
The Essel Group’s Debt and Loss.
(Photo: BloombergQuint)

Essel Group's Pledged Shares

Did debt prompt Zee Entertainment promoters to consider selling half their stake?
Percentage shares pledged to the holding.
(Photo: BloombergQuint)

Asset sales are one way for the group to deleverage.

In October 2018, the group announced sale of four transmission line businesses to Edelweiss-backed Sekura Energy at an enterprise value of Rs 6,000 crore. The net consideration has not been disclosed.

It’s also in the process of selling a few solar energy projects, as per media reports.

And then came the announcement to sell half the promoter stake in Zee entertainment.

(The data in this story has been compiled from MCA filings. While Essel Group shared a comment on the story, it did not confirm or deny the data.)

(Published in arrangement with BloombergQuint)

(At The Quint, we are answerable only to our audience. Play an active role in shaping our journalism by becoming a member. Because the truth is worth it.)

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Topics:  Essel Group   Zee News   Subhash Chandra 

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