Zee Entertainment Enterprises Ltd. offered financial support to its promoters at a time Subhash Chandra-led Essel Group struggled to repay lenders.
The broadcaster provided loans, deposits and advances worth Rs 175.2 crore to related parties, including promoter-owned entities, in the financial year ended March 2019, according to an exchange filing. The borrowers include Widescreen Holdings Pvt. Ltd., Konti Infra Power & Multiventures Pvt. Ltd. and Edisons Infrapower & Multiventures Pvt. Ltd., among others.
“Konti and Edisons are the very entities that have created problems for mutual funds invested in their bonds by delaying payments. Since they are promoter-linked entities, it's not good to have Zee (a debt-free company) lending money to these entities,” Deepak Shenoy, founder at Capital Mind. “This is not good corporate governance, and exposed Zee to potential default from these companies as well.”
Essel Group has yet to respond to BloombergQuint's emailed query.
Promoter debt has been a concern for investors as Essel Group had offered shares of Zee Entertainment as a collateral. The stock has tumbled 39 percent in the last 12 months and 29 percent so far this year. Mutual funds earlier agreed not to sell pledged shares till September end even if the stock price falls further. And as the promoters look to sell half of their stake in the broadcaster, they received financial support from the flagship company.
Zee Entertainment's loans, deposits and advances receivable from related parties, including promoters, stood at Rs 223.3 crore as of March 2019, according to the exchange filing. That's a fivefold jump from Rs 42.7 crore as of March 2018. These, however, were carried forward from previous fiscals as the company didn't issue fresh loans, deposit or advances to related parties in 2017-18.
Among the related-parties, Konti Infrapower and Edisons Infrapower have received the most from Zee Entertainment. The two companies suffered losses in the 2017-18 on account of high finance costs and minimal revenues.
It's because of the exposure to the debt investments in these two Essel Group companies, Kotak Mutual Fund was unable to fully repay unitholders of its fixed maturity plans. HDFC Mutual Fund, too, rolled over a scheme to delay redemption. Subsequently, the fund house bought Essel Group companies' non-convertible debentures of up to Rs 500 crore to rescue investors of its fixed maturity plans.
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