Essel Group, the promoter of Zee Entertainment Enterprises Ltd. has pledged 10.71 percent shareholding in the media giant with Russia’s VTB Capital Plc.
The encumbrance was created pursuant to a loan agreement executed on Sept. 4, 2017, according to a disclosure made by VTB Capital to the stock exchanges. The encumbrance is on 10.2 crore shares of Zee owned by Essel Media Ventures Ltd.
This disclosure is pursuant to new Securities and Exchange Board of India norms that came into effect on Oct. 1. Ordinarily a promoter has to disclose details of share pledges or any invocation or release of such pledge or encumbrance within 7 days. But the new norms require disclosure of detailed reasons for encumbrance if the shares pledged equal or exceed 50 percent of the total promoter holding (including shares owned by persons acting in concert) or 20 percent of the total share capital of the company. Any increase of encumbrance over these thresholds also warrants disclosure.
As of June 30 stock exchange data, Zee’s promoter shareholding was 35.79 percent, of which 63.98 percent was pledged.
Since it was already disclosed that more than 50 percent of the promoter shareholding has been pledged, the purpose of this new filing is not immediately clear. It may likely indicate an increase in encumbered shares but sans any explanation provided by Zee or the Essel Group, BloombergQuint was not able to confirm that. VTB’s filing offers no explanation either.
VTB Capital is acting as the security agent on behalf of certain Zee lenders, namely VTB Bank (Europe) SE, Austria Brance, LLC VTB Capital Holding IB and VTB Bank (Europe) SE, according to the filing.
Essel Group’s Debt Woes
Faced with high debt raised to fund private promoter entities’ infrastructure businesses, Subhash Chandra’s Essel Group has been working to sell assets to deleverage. Much of this debt was raised from mutual funds and non banking finance companies by pledging shares owned by the Essel Group in Zee and other listed companies. That VTB entities were among the lenders was not known so far.
Earlier this year, several lenders had agreed to a standstill on debt servicing and repayment as well sale of pledges shares, in order to give Essel Group time to monetise assets and repay the loans. That standstill was to end in September but some lenders agreed to a six month extension as the Essel Group has serviced nearly half its liabilities.
In August, Essel Group agreed to sell up to 11 percent stake for Rs 4,224 crore in Zee to Invesco Oppenheimer to repay lenders. It has sold some solar power assets. So far it has repaid Rs 4,450 crore with Rs 5,500 still outstanding.
Shares of Zee Entertainment closed 5.8 percent lower on Friday, at Rs 236.8 apiece. The company’s share price has declined over 50 percent since the beginning of 2019 on account of the debt overhang at the promoter group level.
The original version of this story has been amended to clarify SEBI’s new norms for encumbered shares and the context for VTB Capital’s disclosure.
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