CARE Ratings downgrades Zee Media credit rating

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Published: July 10, 2019 2:01:08 AM

The revision in rating was due to the weakened financial flexibility at the Essel group level. However, there is no debt mutual fund investments in Zee Media Corporation.

On Tuesday, shares of Zee Media Corporation ended the day at Rs 12.53, down by 2.11%. (Representational Image)On Tuesday, shares of Zee Media Corporation ended the day at Rs 12.53, down by 2.11%. (Representational Image)

CARE Ratings has downgraded its ratings for bank facilities of Zee Media Corporation (ZMCL) amounting to Rs 251.20 crore. Long Term Bank Facilities-Term Loan and Long Term Bank Facilities-Cash Credit were downgraded from CARE A to CARE BBB, while Short Term Bank Facilities-Bank Guarantee from CARE A1 to CARE A3+.

The revision in rating was due to the weakened financial flexibility at the Essel group level. However, there is no debt mutual fund investments in Zee Media Corporation.

“Although the Essel group has been in the process of monetizing its infrastructure business, as also selling up stake in the flagship business i.e. Zee Entertainment Enterprises (ZEEL) so as to improve the liquidity position of the group, the progress on the same has been slow. Further, the revision in the rating of ZMCL also factors in the weakening of the capital structure and liquidity position of the company at the consolidated level, especially after factoring the corporate guarantee extended to Diligent Media Corporation (DMCL),” said CARE in a press release.

In January this year, share price of Zee Entertainment Enterprises and Dish TV fell sharply in the range of 26-33%, primarily on reports of pledged shares of promoters being invoked and sold. Mutual funds had invested in the debt instruments of Essel’s infrastructure projects and are holding shares of Zee and its subsidiaries as collateral. This resulted in security cover against exposures falling below the prescribed threshold as per the NCD documents. For several infra projects the promoter has stood as guarantor and provided collateral in the form of shares.

However, the promoters conveyed their inability to provide additional equity shares as most of their domestic shareholding was already pledged. Consequently, a meeting was held between the promoters and group of lenders and it was agreed to provide additional time to promoters to complete their ongoing strategic sale plan of Zee Entertainment Enterprises shares. Lenders are understood to have granted the Essel group companies a moratorium till around September 2019 by which time fund houses expect the repayments. Officials in the industry say that, debt mutual funds have invested around Rs 7,000 crore in Essel group companies.

CARE Ratings also added that, significant decline in the market capitalisation of the listed entities of the Essel group over the last one year and the high level of pledging of the promoter holding in these companies has further reduced the financial flexibility of the group. As on March 31, 2019, amongst the total promoter holding of 57.74% in Zee Media Corporation, 93.84% has been pledged.

In the last financial year, Zee Media Corporation posted profit after tax (PAT) from continuing operation stood at Rs 13.2 crore compared to Rs 49 crore in the previous financial year, a drop of around 73%. On Tuesday, shares of Zee Media Corporation ended the day at Rs 12.53, down by 2.11%. The company also, in its exchange filing on Tuesday, stated that Ashok Venkatramani has resigned as managing director of the company with effect from close of business on July 9, 2019.

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