US fund Invesco pays 10% premium to pick 11% more in Zee for Rs 4,224 cr; group to lower debt to Rs 7,000 cr

Mumbai: In its quest to reduce debt, the Subhash Chandra-led Essel Group Wednesday roped in existing investor Invesco Oppenheimer to raise its stake in flagship Zee Entertainment Enterprises by another 11 percent for Rs 4,224 crore. The price being paid by Invesco, which is a financial investor already holding 7.74 percent in Zee for long, is around Rs 400 a share, or more than 10 percent premium on its Wednesday’s close price of Rs 361.45. Under the deal, the Atlanta-based Invesco, which already has been an investor since 2002 with a 7.74 percent holding, will increase its shareholding by another 11 percent by paying Rs 4,224 crore.

Chandra’s son Punit Goenka, who is the managing director and chief executive of Zee, told PTI that the deal will help promoters pare debt to around Rs 7,000 crore from Rs 11,000 crore now. The group had a debt of Rs 13,000 crore as of January, which has now come down to Rs 11,000 crore, courtesy internal accruals and other measures, he said.

Chandra had first announced that he would be selling half of his family’s holding in Zee last November without attributing any reasons and followed that up with an admission of severe financial stress late January. The family owns 35.79 percent as of June, of which over 64 percent are pledged with lenders. After this deal, the family holding will go down to around 24 percent. With nearly 64 percent of promoter holding pledged with mutual funds and banks to raise money for other businesses including roads, solar and financial services, where the promoters’ bets went awry. In that aggravated the situation, there was a sharp correction in Zee’s share prices in January, which Chandra blamed to “evil forces out to sabotage share sale attempts.” [caption id=“attachment_5971361” align=“alignleft” width=“380”]  A file photo of Subhash Chandra, Chairman, Zee Group. PTI[/caption] With the value of the underlying security crashed, MFs were in a piquant situation and ultimately chose to create a one-off restructuring package, giving the promoters time till September to pay back over Rs 11,000 debt. Goenka said the group is focused to sell non-media assets, including financial services, roads, and solar power businesses and exuded confidence that the money raised will ensure that further stake sale in the flagship company will be “minimal”. Committing to adhere to the September deadline, he said the money requirements will be the sole criteria determining the amount of further dilution and added that the family has not set a floor on stakeholding for further reduction. He claimed the promoter family has received non-binding bids for the solar power and road assets, and exuded confidence that announcement of this deal will help the other deals as well. For Zee, he said a stake sale to a strategic player is “off the table” now because of the timelines set by MFs and confirmed that it is in discussions with a few. Media reports had said it was in talks with US-based Comcast, Sony and also the Murdochs for the stake sale. “Invesco Oppenheimer Developing Markets Fund has agreed to make an additional investment in Zee. It has agreed to buy up to an 11 percent stake more in Zee from the promoters for Rs 4,224 crore,” an official statement said. Financial sector participants have been all along maintaining that the nearly-three-decade-old Zee, which heralded the launch of satellite TV in the country, is a lucrative asset which will find buyers and blaming the promoters’ other forays for the troubles the group is under. The group’s problem with loans come at a time when a huge array of promoters have been saddled with the problem of debt, which has been raised by pledging their holdings. The stake sale announcement comes a day after Cafe Coffee Day promoter VG Siddhartha allegedly committed suicide due to financial stress and tax hounding. Terming Siddhartha’s death as “tragic”, Goenka told PTI, “I think the world should take note that you can’t push people to such extreme steps. Promoters who’s intent is very clear and very straight forward should be treated with a different yardstick.” Ahead of the deal announcement late in the evening, the Zee counter closed as the top loser in the Nifty shedding 5.2 percent to close at Rs 361.45 against the index closing with a marginal 0.27 percent gains after a week of heavy losses.