Promoters of Zee Entertainment Enterprises Ltd. may not look for a strategic investor after they agreed to sell an 11 percent stake to Invesco Oppenheimer Developing Markets.
“Strategic investor is off the table for now,” Punit Goenka, managing director and chief executive officer of Zee Entertainment, told BloombergQuint in an interview.
Promoters of Zee Entertainment agreed to sell up to 11 percent stake in their flagship entertainment company at Rs 400 apiece for Rs 4,224 crore. The U.S.-based fund already holds close to 8 percent in the company. The proposed purchase will take its overall stake to above 18 percent.
The stake sale which happened at a 20 percent discount to its 52-week price is better as it is significantly above the 52-week low price, Goenka said when asked if he thinks Rs 400 is a fair price. “Oppenheimer couldn’t acquire more than 11 percent due to investment limits,” he said.
Goenka expects the transaction to be completed by August-end. The transaction would require creation of an escrow account where the lenders will pool the shares, he said, adding that a common escrow agent agreed upon by Zee promoters, lenders and Invesco Openheimer will be appointed. “Invesco Oppenheimer will transfer the funds to the escrow. The transaction will be structured to have minimum tax outgo.”
Though the first leg of transaction is expected to bring in close to 40 percent of the funds required to retire Rs 11,000 crore of dues to mutual funds and non-bank lenders, the promoters are in discussions to sell non-media assets.
Discussions have been going on over the last eight months with prospective bidders for its solar and road assets. Though the road assets take significant time to close, Goenka said he is hopeful to close the deal by September-end, the timeline it agreed with the lenders as part of standstill agreements.
The Essel Group is also in discussions to enter into a strategic partnership for its media assets. “We are in discussions for strategic partnerships in other media assets and not sale,” Goenka said, adding that it doesn’t have anything to do with the ongoing transaction.
Watch the full interview here:
Here’s the edited transcript of the interview:
Why did you go for a financial investor and not a strategic investor?
We were contemplating both offers that we received, financial as well as strategic, but given the timelines we had committed with our lenders, it was imperative that we would not be able to complete the transaction with the strategic investor and therefore we had chosen to go with the financial investor. Invesco Oppenheimer has been a long-standing investor of Zee. We have known each other for almost 17 years now.
Does that mean the door for a strategic investor at Zee is now closed?
For the time being, strategic investment is off the table. Just to reiterate, if we have to meet the Sept. 30 deadline with the lenders and we know for certain that we will not be able to close a transaction with a strategic investor and therefore we have to go with a financial investor only.
Do you think you sold the shares at a fair value?
If you look at it that way then yes, it looks like a discount but from my perspective, if you look at the 52-week low, it’s a significant premium that we’ve achieved over the deal. Including the closing of today, this deal is at a premium to that.
You still need to get in another Rs 6,800 crore to complete the Rs 11,000 crore transaction that you promised the lenders to pay up before the end of September. When do we see this entire other amount coming through? Why did you only decide to sell 11 percent and not more?
The 11 percent is the limitation of Invesco Oppenheimer. They could only take that much because of their own internal guidelines, rules and regulations. We do believe that the timelines of Sept. 30 with the stake sale or the assets sales of non-media assets will contribute significantly to the balance of Rs 6,000 cr. Any shortfall would be met by another round of financial investors infusing more capital to the promoters or sale of Zee shares.
This deal brings down your stake to roughly below 25 percent. Are the promoters comfortable having stake below 25 percent? Will you be looking to shore up this stake in the future?
The promoters’ first priority is to retire the entire debt and get the pledged shares released from the lenders. And if that means we have to sell below 25 percent of the Zee shareholding, that will be done. What we will do in the future? Given that the company and management control will be retained by the family, we will keep looking at options and exploring options on how to generate value for all shareholders of the company.
You said that there would be a marginal additional stake sale of Zee shares that may happen depending upon how much you get from other assets. Do you have a ballpark figure of how much more Zee stake will be sold and what is the amount you may get from your road assets or solar assets or, for that matter, transmission assets?
For the assets, I have already received non-binding term sheets. I am not at liberty to share those numbers because they are bound by confidentiality. Until I don’t determine what that value is going to be, it’s hard for me to say how much of the Zee shares I’ll have to sell. But I am pretty confident that it’ll be a minuscule, minimal share that I’ll have to sell and therefore the larger share will still remain with the family.
You had clarified in the conference call as well that any future stake sale will happen only above Rs 400?
That is correct.
How is this sale going to take place, can you give us a structure of this deal?
It will be done through an escrow mechanism where the lenders have to pool their shares and once the escrow agent confirms that the requisite number of shares have been placed, they will tell Invesco Oppenheimer to add the funds. And therefore, on that day, the transfer of funds will happen.
Will that escrow mechanism not require a bridge financing in between?
It doesn’t need bridge financing because it is happening through a common escrow agent that is appointed by us, the lenders and Invesco Oppenheimer. That is the way to protect all the parties.
It will happen on a platform so that you are able to get a tax advantage?
My team will do the best to minimise taxes.
The waterfall mechanism that you have entered into with the lenders... Can you give us an idea of how much money would go to mutual funds and NBFCs? Have you started a discussion with lenders? By when do we expect some formulation for the escrow mechanism?
I have not yet formally met my lenders but I will start interacting with them from tomorrow.
Are you looking at selling media assets?
We may be partnering on some other media assets with other like-minded strategic partners.
Is there a timeline for such a strategic partnership?
Nothing to do with the Sept. 30 deadline.
What is the relation with Invesco Oppenheimer? Will they be purely an equity investor or will they have any kind of rights going forward? Some backstop or comfort levels which have been provided by the promoters?
No. Nothing has been provided by the promoters or the management. All they are is a public shareholder. Their shareholding moves from 8 percent odd to 18 or 19 percent odd going forward. They have no rights attached to this thing.
At the quarterly earnings, you said that you were in talks with two parties. From one, you had a binding bid and you tried to convert another one into a binding bid. What happens to the second party?
No, I just stated. Now we have signed with one of the parties, the second party is off the table.
Do we have any clarity on when the non-core, non-media businesses can be sold? Because though the street welcomes this tranche of stake sale which is coming in. There is still apprehension about these infra companies because these companies tend to take a lot of time for closure. Especially road assets, we have seen that it takes more than six months. In many cases, the road assets are sold but the closure takes much more time. Have you factored in all this? Where are we on the kind of talks or discussions there? When do expect this non-binding interest to get converted into a binding interest and closure to happen?
As I have maintained with you, as soon as I have more details on those transactions, I’ll come back and share those with you. As of now, I don’t have much more to share on those transactions. I completely understand from you that these transactions take time to happen. But we have been at it for the last eight months. Rest assured, as and when those fructify, we’ll be in contact with you.
You mentioned in the analyst call that you expect all non-media asset sales to be completed by August. Do you stand by that?
No, I stated that this transaction will be completed by Aug. 31 latest. The other transactions, I’ve still time till Sept. 30.
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