Zee Oppenheimer deal for Rs 4,224 crore not enough, more stake sale to pare debt likely

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Updated: August 1, 2019 11:09:38 AM

After billionaire Subhash Chandra-promoted Zee Enterprises announced a deal with Oppenheimer Fund to sell 11% stake for Rs 4,224 crore, analysts note that while the deal allays near-term concerns, more stake sale is likely to to pare Essel promoter's debt.

Zee promoter Subhash Chandra

After billionaire Subhash Chandra-promoted Zee Enterprises announced a deal with Oppenheimer Developing Markets Fund to sell 11% stake for Rs 4,224 crore, analysts note that while the deal allays near-term concerns, more stake sale is likely to to pare Essel promoters’ Rs 11,000 crore debt. Notably, Invesco Oppenheimer has agreed to buy an 11% stake in Zee Entertainment for Rs 4,224 crore (about one-third of the total group-level share pledge), implying a cost of Rs 400 per share, according to brokerage firm Emkay Securities. Following the deal, Oppenheimer’s stake will rise to 18.3% in Zee Enterprises.

Also read: Share Market Today Live: Sensex down 220 points, Nifty near 11,050; Zee Entertainment, Yes Bank top losers

Taking stock of the development, global brokerage firm CLSA said that more assets are likely to be sold to pare debt further to repay the remaining Rs 6,800 crore worth debt. A stake sale of further 8-18% in Zee Enterprises is likely to meet the debt. In an interview to Financial Express, Zee Enterprises MD & CEO Punit Goenka said that the promoter’s liability in Eseel Group is Rs 11,000 crore while the rest is sitting in operating companies.

“We plan to retire the entire Rs 11,000-crore debt by September this year. This Rs 11,000 crore is against shares pledged,” Punit Goenka said. CLSA noted that management continuity will be key in Zee Enterprises going forward. Interestingly, the promoters’ stake in Zee Enterprises has already fallen below 25 per cent post the deal. However, Punit Goenka is confident that the firm will continue to retain control. “The stake issue of control through equity is an old school thinking I think. I know enough companies that are run by promoters with less than 5% economic interest,” he said.

Axis Capital noted that the while the current deal is healthy, the deadline of September 30th is stiff, and the firm will have to sell additional stake to to address the possible shortfall. Notably, the firm is planning to get into aggressive negotiations for its non-media assets, which would include the financial services portfolio, solar assets and roads assets. “We have non-binding offers for our solar and roads assets. The roads deal can be wrapped up quickly so that we can meet the timeline of September 30, 2019. We had agreed with the lenders to stick to this timeline,” Punit Goenka noted. Credit Suisse said that the promoter stake sale is not the best deal possible, as it addresses only a part of the group’s debt problems.

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