Does Subhash Chandra Need A Commercial Break?

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

Subhash Chandra, Chairman, Essel Group and Zee Media. (Photo Courtesy: Twitter/ <a href="">@subhashchandra</a>)
Subhash Chandra, Chairman, Essel Group and Zee Media. (Photo Courtesy: Twitter/ @subhashchandra)

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.

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.

Does Subhash Chandra Need A Commercial Break?

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 Dec 5. 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.

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.

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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.

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.

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.

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The data indicates the group’s financial stress is undeniable. A rating agency has said as much.

The Essel Group is facing cash-flow mismatches in some of its subsidiaries in the road segment, said CARE Ratings in its September note.

And the group may be running out of shares to pledge. In fact, Punit Goenka, managing director and chief executive officer of Zee Entertainment, told BloombergQuint in an interview in November that the pledges “have gone up beyond what is comfortable levels for us. We have already put in a plan for de-leveraging group from pledge levels from the assets which are being divested”.

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.

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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.