Lenders have driven a hard bargain with Subhash Chandra, asking the Zee group chairman to provide a personal guarantee for payment obligations on an "irrevocable and unconditional" basis.
The formal agreement inked between Zee and a committee of lenders (COL) gives the latter more powers and greater control over the developments at the media major. The Zee group owes Rs 13,500 crore to lenders, whose exposure is secured by equity shares of listed firms that include Zee Entertainment and Dish TV.
In response to queries regarding this, Zee said, "As communicated through our official statement issued on February 3, the lenders have agreed that there will not be any event of default declared, due to the movement in the stock price of Essel Group's listed corporate entities, giving Essel Group the required level of time to complete the strategic sale process of its key assets without any compromise on the value. Any additional terms pertaining to the agreement cannot be shared since we are bound by a confidentiality agreement."
Zee and lenders had decided to enter into an agreement to not offload the pledged shares amid a sharp slide in the prices of the underlying securities during end-January. Business Standard has reviewed the draft agreement copy, which was formalised over the weekend.
The terms give the lenders greater say, upside benefit from the proposed strategic sale, more cover and personal guarantee.
Market regulator Securities and Exchange Board of India (Sebi), too, was apprised of the development by mutual fund (MF) industry body, the Association of Mutual Funds in India (Amfi).
The group of lenders to Zee mainly comprises MFs that include Aditya Birla Sun Life MF, HDFC MF, Franklin Templeton, and ICICI Prudential MF.
Sources say MFs have told Sebi the decisions taken by them were keeping in mind the interest of unitholders given the challenging circumstances.
A sharp drop in Zee group shares on January 25 had put the lenders in a spot.
"Invoking and liquidation of pledged shares would have caused the shares to tumble further. At the same time, holding on to the shares would have raised the risk of default. The formal agreement with Zee gives us more control. We are hopeful that they will be able to conduct strategic sale at fair value," said an MF official.
Under the agreement, Zee has to enter into a definitive agreement for the proposed sale before July 31 and ensure the transaction is completed before September 30.
Further, Zee set up an escrow account for the transaction which will be overseen by the lenders to ensure the sale proceeds are received and utilised properly.
Sebi weighed the agreement between the MFs, lenders and the Essel group and directed them to ensure that the interest of shareholders would not be impacted.
In the meantime, Zee will hold meetings on weekly basis (over conference calls) and monthly basis (in person) to update lenders on the sale process.
"In consideration of you not taking any precipitative actions against listed equity shares of the security companies and not declaring an event of default, even though the price of Zee Entertainment and other Essel group listed company shares have fallen, we undertake to make payment of an additional premium (upside) on the basis of price we achieve as part of the proposed sale," the draft agreement states.
The Zee group has also agreed to transfer all the equity shares belonging to the promoter group to separate demat where the lenders will get viewing rights.
Over 150 debt MF schemes have exposure to the Essel group bonds and debentures.