MFs get first lot of dues from Essel on 8.7% Zee Entertainment stake sale

As part of the 'standstill' agreement with MFs and other creditors, Essel promoters have till September-end to clear remaining dues

Mutual funds (MFs) and non-banking financial companies have received a part of their dues from Essel Group. Among fund houses, ICICI MF, Aditya Birla Sun Life MF, HDFC MF, and Kotak MF have received payments from funds raised by the promoters’ stake sale in Zee Entertainment, said people in the know. 

Industry sources added ICICI MF received Rs 435 crore, or 60 per cent, of its outstanding dues. Aditya Birla Sun Life MF received Rs 760 crore, or half of its dues. HDFC MF received Rs 580 crore of its dues, which brought its debt exposure to group firms down by half. In addition, Kotak MF also received Rs 208 crore of dues or 52 per cent of its outstanding dues. 

“The group wishes to confirm that the first tranche of the transaction comprising sale of 8.7 per cent stake in Zee Entertainment has been successfully concluded today (Tuesday). The group is confident of completing the balance sale of 2.3 per cent stake over the next few days,” Essel Group said in a press note. 

In July, the promoters had reached an agreement with Invesco Oppenheimer to sell up to 11 per cent stake in the company for a consideration of Rs 4,224 crore. 

The statement added that the group was in the midst of completing the operational formalities to conclude the entire transaction at the earliest. The group is also working on further divestments, including in its non-media assets. 

As part of the ‘standstill’ agreement with MFs and other creditors, Essel promoters have time till September-end to clear the remaining dues related to loans against shares. 

“We expect promoters to meet their payment obligations before September-end. They can sell more stake in Zee Entertainment. Alternatively, this payment will reduce debt burden on the promoters. So, they can also look at possible avenues for refinancing,” said senior executive of a fund house. Industry sources said that the payments being rolled out to MFs and other lenders pertained to exposures where shares of Zee Entertainment were placed as collateral. 

People in the know added there were a few schemes in which shares of other listed group firms were also part of the collateral mix. 

“While most fund houses had lent against Zee shares, few schemes had lent against a combination of Dish TV and Zee shares,” said a fund manager.  Industry insiders added that the fall in exposures would also improve equity cover of some fund houses on the remaining exposures. 

For instance, the new equity cover of ICICI MF improved to 1.58x from close to 1.2x. 

Overall, the MF industry had debt exposure of Rs 5,000-6,000 crore to Essel Group firms. Franklin Templeton MF, SBI MF, and UTI MF were others exposed to the group.  Earlier, MFs and other lenders had entered into a ‘standstill’ agreement with promoters of Essel Group, where they agreed not to sell the pledged shares and give promoters time till September. 

The move, however, did not go down well with the Securities and Exchange Board of India, which stated it did not acknowledge such arrangements between fund houses and their promoters.