Zee stake sale: Why mutual funds with exposure to Essel Group may now have something to cheer

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Updated: Jul 31, 2019 9:23 PM

With the Essel Group initiating the process of divesting its key assets on order to repay all the lenders by September this year, mutual funds with large exposure to the group may heave a sigh of relief.

Investments in KVP to now double in 9 years 5 monthsThe group has also said that it received positive response from several players during the divestment process that are keen to buy stake in ZEEL

With the Essel Group initiating the process of divesting its key assets on order to repay all the lenders by September this year, mutual funds with large exposure to the group may heave a sigh of relief. The development comes as the foreign fund house Invesco Oppenheimer Developing Markets Fund on Wednesday agreed to buy up to 11 per cent of promoter’s stake in Zee Entertainment Enterprises Ltd (ZEEL) for Rs 4,224 crore. It is expected to bring good news for mutual funds that have the biggest exposure to Essel Group at Rs 7,570 crore including Aditya Birla Sun Life Mutual Fund, HDFC Mutual Fund, and Franklin Templeton Mutual Fund, among others. Zee Entertainment Enterprises Ltd’s share price fell over 5% today from the previous close to end at Rs 361.45 on BSE, ahead of the deal announcement.

According to a report by Morningstar released in April this year, out of total exposure of AMCs in the group, Rs 1,673 crore was in FMPs (fixed maturity plans). HDFC AMC exposure to Essel Group firms stood at Rs 1,196 crore, of which Rs 902 crore was the FMP’s exposure.  ICICI Prudential’s exposure stood at Rs 866 crore, (FMP exposure Rs 121 crore), Aditya Birla Sun Life Rs 2,936 crore ( FMP exposure Rs 77 crore), Reliance Nippon Life Asset Management Rs 424 crore (FMP exposure Rs 239 crore), DHFL Pramerica had a total exposure of Rs 46 crore in Essel Group entities, of which the FMP exposure stood at Rs 7 crore.

Also read: After Kotak FMP snag, a look at other mutual funds with exposure to Essel Group firms

Blackstone deal

Earlier in April, PE giant Blackstone had snapped up Essel Propack in a Rs 2,157 crore deal. However, chairman Ashok Goel had clarified that the amount raised from the deal will not be used by Zee group promoter Subhash Chandra to pay back lenders. Meanwhile, the group has also said that it received positive response from several players during the divestment process that are keen to buy stake in ZEEL and other non-media properties, Essel Group said in a regulatory filing.

Also read: Here’s what Blackstone is getting for Rs 2,157 crore in Essel Propack deal

Promoters’ stake

The promoters of the group have been paring their stake consistently over the last couple of quarters. The group promoter Subhash Chandra had written an open letter to lenders and investors apologising for not living up to their expectations in January 2019, even as mutual funds invested in the group companies had agreed to a standstill on selling their stakes at firesale prices. These asset management companies gave the Subhash Chandra group time till September to raise the funds and repay their dues. The mutual funds’ decision to not sell the stake and instead withhold investors’ partial money upon maturity of the schemes had drawn considerable ire from the media and the investor community.

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