The Subhash Chandra-controlled Essel Group announced on Wednesday that Invesco Oppenheimer Developing Markets Fund, a long-time investor in Zee Entertainment Enterprises (ZEE), has agreed to acquire an 11% stake in the company for Rs 4,224 crore at Rs 400 per share.
This investment sets ZEE’s enterprise value at Rs 37,439 crore ($5.44 billion). The money will help the promoters repay a part of their debts of around Rs 11,000 crore.
Punit Goenka, managing director & chief executive officer, ZEE, told analysts while the company did have an offer from a strategic investor, it would have taken more time to close.
“We took a conscious decision to go with the financial investor to adhere to the timeline. A strategic partner would have taken longer to conclude a deal with us,” Goenka said.
The transaction with Invesco Oppenheimer gives the Essel Group breathing room to conclude other deals in the non-media space, primarily infrastructure assets.
Mutual funds, which have an exposure of roughly Rs 5,200 crore to the Essel Group’s overall debt, had set a deadline of July 31 to receive their dues before selling the shares in the market.
Invesco Oppenheirmer has come in as a pure equity investor without any board seat or special conditions, Goenka said, adding the tax leakage would be small.
Oppenheirmer has no right of first refusal on any further stake sale by ZEE to any other nor did it do any due dilligence.
The existing management will continue.
Oppenheimer’s holding will increase to 18.8% after the closure of the deal.
The deal now sets a floor price for the shares of ZEE, which have fallen 24% since January when Subhash Chandra wrote an open letter to lenders seeking more time to repay its debts.
The company is expecting to conclude this deal by August other asset sales over the next two months. The Essel Group has been engaged in multiple conversations with strategic and financial investors to divest its stakes in its media and non-media assets to repay the Rs 11,000-crore debt of the promoters.
While the deal has been done at Rs 400/share, which is higher than the current market price of Rs 361.45/share, it is below the expectations of industry experts. Given that the Disney-Fox deal valued Star India’s operations at $15 billion, Zee Entertainment should have commanded a valuation that was similar to that of Star India. Goenka said he was glad to share that Invesco had further reposed its faith in ZEEL.
Lenders to the Essel Group, especially mutual funds, can heave a sigh of relief as the promoters can now pay their dues. The Essel Group owes mutual funds close to Rs 5,200 crore, following some payments made in July. One payment of Rs 128 crore is due for maturity in September 2019, while the next payment of Rs 1,421 crore is due only six months later.
Commenting on the deal, A Balasubramanian, CEO of Aditya Birla Sun Life AMC, said, “It is hugely positive for the mutual funds which have lent money to the Essel promoter. With this deal, the promoter will be able to pay 50% of the debt due to lenders, including the mutual funds, in the standstill agreement. The promoter is confident of raising the balance 50% by September 30 and paying off the roughly Rs 7,500-crore debt covered by the standstill agreement. It is the first resolution in capital market to reduce the credit market pressure. This move should boost the equity market and credit market confidence.”
The priority of the promoters is to clear the loan against shares. Goenka said the idea was to sell as little of ZEE as possible and ensure the family retains a stake in the crown jewel. The company has received non-binding offers for its non-media assets claimed Goenka, and dialogues are on with several parties.
Explaining the minimum leakage on account of taxes, a CEO of the leading fund house said the deal would not attract any tax because of the grandfathering clause. The price of Zee Entertainment was much higher than what it is today and hence, there will be no tax on this deal.