Subhash Chandra's Essel Group banks on infrastructure, media stake sale

Of the 3 infra assets on the block, one is nearing completion, and the rest will be done in the next 3 to 6 months

The Subhash Chandra-led Essel Group is counting on the sale of infrastructure assets and a part sale of the promotor holding in Zee Entertainment (ZEEL) to remove the pledge on promoter shares.
 
Nearly 25 per cent of the equity of ZEEL has been pledged by the Indian promotors (Chandra and his family) to the group’s lenders, while in the case of Dish TV, it is nearly 56 per cent, data for the period ended December 31, 2018, shows. This has been done to pick up debt for infrastructure projects undertaken by the group over the last few years.
 
Chandra and his family, for the record, hold a 41 per cent stake in ZEEL. Senior executives with public sector banks having exposure to Essel Group companies have said the conglomerate’s infrastructure projects, including road and power projects are under stress. “But they are not on the verge of slippage,” an official said, adding the group was under close scrutiny by them.

 
Since October, Essel Infra has been offloading some of its key projects, including the sale of four power transmission projects for an enterprise value of Rs 6,000 crore to Edelweiss group-backed Sekura Energy. Some media reports have also said the Essel Group had closed the sale of its solar power projects to private equity investor Actis for Rs 5,500 crore.
 
In an analysts’ call on Friday, ZEEL’s Managing Director Punit Goenka said one solar project had an in-principle deal, while the other two assets on the block in power and roads would be completed in the next three to six months.

 
 The enterprise value of the infra assets on sale, said Goenka, was Rs 20,000 crore, while their equity value was in the region of Rs 8,000-9,000 crore. “The sale of the infra assets alone should help remove a significant part of the pledge (on promoter shares). We may not sell all of the promotor stake in ZEEL because that may not be required,” Goenka said.
 
In November, ZEEL had said it was looking to sell half of its promotor stake to a strategic partner, preferably a foreign investor. Speculation was rife that all of the promoter stake in ZEEL could be sold to an interested player, but that seems unlikely to happen with the management clarifying its position on Friday, said analysts.

 
Apart from potential foreign investors, the stake sale process has been opened to domestic investors, too, Goenka said, adding a deal could be announced shortly. According to analysts, Essel Group’s debt against infrastructure projects is in the region of Rs 10,000 crore. 
 
“While pledging of ZEEL’s shares is not new, its rise in five years, from 42 per cent in December 2013 to 59 per cent in December 2018, in addition to ZEEL’s stock price fall (on Friday) have exacerbated risk of pledges being invoked,” foreign brokerage CLSA said in a report on Saturday.
 

Brokerage Nomura, however, said in a note that there was no change in business fundamentals of the group despite the fall in stock price of key companies on Friday. “A large part of the correction in the stock price was in the futures/options segment, and actual deliveries were much lower,” it added.