Subhash Chandra unable to repay loans, Pledged shares in Zee to be sold

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Indian media tycoon Subhash Chandra might lose control in ZEEL (Zee Entertainment Enterprises Limited) as Non-Banking Financial Companies (NBFCs), Foreign Portfolio Investors (FPIs), and Asset Management Companies (AMCs) who gave loan to Essel Group firms (who are promoter of ZEEL) against his shares in ZEEL mutually are planning to sell off those shares after putting them in an escrow account.

The lenders who invested money in Chandra’s funds deprived firms in Essel Group are already in talks with various investors who have shown their interest in the shares, they are trying to sell all the shares that were pledged by Essel Group firms, as said by three people associated with the process.

One of these three people made a statement, ‘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’.

Previously, VTB Capital, a Russian investment banking firm started the process to sell off 10.71% shares of the media company.  The company stated this selling process around mid of October last month.

This month, the news surfaces that these second set of lenders are to planning to transfer their 10.77% shares to an escrow account, however it is unknown if VTB and these second set of lenders (NBFCs, AMCs, and FPIs) are going to sell their shares together to get better value through a combined offer or independently.

A spokesperson from ZEEL said ‘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’.

He further added, ‘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’.

As of today, Essel Group hold 22.37% stake in ZEEL as promoter shares, out of these 22.37% shares, 21.48% were pledged as collateral by issuing Non Convertible Debentures (NCDs) to the creditors against financial aid. At the current price point, these pledged shares have a market price of over Rs. 6,000 crore.

If the pledged shared with the lenders are sold off, Chandra will be left with mere 0.89% stake in ZEEL.

Another person (out of the three people associated with the second set of lenders) said, ‘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, 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 did not lend the money to Essel Group itself, rather it only acted as an agent for VTB Bank (Europe), VTB Capital IB Holding Ltd., and VTB Bank (Europe) SE. These institutions lent loan in September 2017 to Essel Group firm(s) against promoter shares.

VTB Capital earlier said that if they reach an acceptable resolution with Essel Group firms they will stop the sale of the shares and give the shares back once the outstanding dues are repaid.

As Essel Group has come out as incapable of repaying the loan, VTB Capital have no other means but to sell off the pledged promoter shares in ZEEL.

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