The Zee Entertainment technology divestment play

'Does Subhash Chandra need a commercial break?'

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Zee
DNA the daily newspaper owned by Diligent News Media which belong to ZEE Entertainment Enterprises which in turn belongs to the Essel Group

The clever title given above is of an article by Aman Kapadia of BloombergQuint dated 8 December 2018, which questions whether the Zee Entertainment Enterprises search announced in November for an investor. It questions whether the promoter stake divestment is actually for finding a technology partner to transform Zee into global media-tech company or to save the various Zee group companies from huge debt.

Although the article does not mention the group’s divestment plans for its Essel Propack lamitube company in which it holds 57.19% of the shares and which was announced in the financial press in August 2018, that divestment also now makes more sense in light of the November Zee Entertainment divestiture announcement.

The Essel Group has denied that the Zee Entertainment share offloading decision is linked to the group’s debt and has reiterated that the idea of divesting up to half of the promoter’s shareholding in the media group is to transform Zee into a ‘content and technology company.’ However the BloombergQuint article and several others in the financial media have questioned both the reason for divestment and the likely value to be realized by the divestment of the promoter’s stake. A stockbroker when asked about the prospects of the Zee divestment on the ET Now television channel, was flatly skeptical that the deal would happen at all, mainly because of the debt that the group companies are carrying.

The BloombergQuint investigation and article finds that the promoters stake sale may in fact be inevitable given the almost Rs 17,000-crore total debt raised by 15 investment companies (debt Rs 7,689 crore) and 88 operating companies (debt Rs. 9,200 crore) of the promoter’s Essel group. The promoter group has more than 100 privately held subsidiaries and affiliates with varied business interests, including infrastructure and infrastructure management projects. Many of these non-media and non-packaging businesses are loss-making and raise questions about the group’s debt. While there is no clear consolidated debt number that is available for the Essel Group’s privately held non-media businesses, publishing industry insiders say that the correct figure is likely to be in the Rs. 15,000 to Rs. 17,000 area. Most of the promoter entities have pledged shares to raise these loans.

The Zee spokesmen have said that the group is selling various assets in order to deleverage its debt. Publishing industry experts say that the debt problems of the group emanate from the family division about two years when Subhash Chandra acquired not only a major part of the family holdings in the group companies but also their debt. Meanwhile financial experts are also questioning if and how the sale proceeds of the promoter’s stakes will alleviate the group’s corporate debt.         

In August and September 2018 the news of divestment of a part of or even the whole of the promoters 57.19% shareholding in the Rs. 2,400 crore Essel Propack surfaced. These even cited Morgan Stanley as having mandate to effect the sale and named a couple of potential global buyers. In October 2018, the group announced the sale of four transmission line businesses to Edelweiss-backed Sekura Energy at an enterprise value of Rs 6,000 crore although the net consideration was not disclosed. The group is apparently in the process of selling some of its solar energy and road projects as well. And then in November 2018, came the announcement to sell half the promoter stake in Zee Entertainment Enterprises.

Also read : Zee looks for a tech partner

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