Zee Entertainment management reassures lenders on stake sale plan

The management of Zee Entertainment on Friday met creditors to reassure them that the stake sale plan was on track and that a buyer had been shortlisted, according to people in the know.

On Friday, shares of the company slipped more than 9 per cent intra-day trade, following its July-September (Q2) results. The company’s profit before tax declined 22 per cent year on year (YoY) to Rs 504 crore. Writing-off of an inter-corporate deposit of Rs 170 crore weighed on the company’s results. 

According to analysts, clarity on the stake sale will be the key driver for the stock, while earnings would have limited impact on it. 

“Until the debt issue is fully resolved and clarity emerges on future control and ownership, we believe the stock will remain volatile,” analysts at Morgan Stanley said in a note on Friday.

Earlier, promoters had entered into an agreement with Invesco Oppenheimer to sell 11 per cent of stake in Zee for Rs 4,224 crore. The proceeds from the sale were used to clear half of the dues owed to lenders.

Following the deal, promoter stake had reduced to under 25 per cent, which subsequently came down to 22 per cent after some lenders invoked their pledges and sold shares in the market. Of the 22 per cent, 10.71 per cent is held by Zee Media. The latter, a promoter entity, has pledged this 10.71 per cent stake to VTB Capital against loans taken by it.

Analysts at CLSA said resolution of “Zee’s pledging crisis would be a key catalyst for the stock”. In a call with analysts on Thursday, Punit Goenka, managing director and chief executive officer of Zee, said the group was in “constant dialogue” with VTB Capital pertaining to the pledged shares of Zee Media. A mail sent to Zee Entertainment remained unanswered till the time of going to press.

The promoters of Essel group have got further extension from the lenders to clear their dues. According to the earlier agreement, the lenders had given the group time till September. The group had indicated that it would reduce the debt overhang through sale of media as well as non-media assets. Apart from non-banking financial companies, some mutual funds, too, have loan-against-share exposures to Essel group companies.

For Q2, Zee saw net profit rise 6.6 per cent on a YOY at Rs 412.1 crore, missing the analysts’ estimates. The revenues were up 7.4 per cent YoY at Rs 2,122 crore.