ODMF Hiking Stake In ZEEL May Prove To Be A Breather For Essel Group

Mumbai, July 31: The announcement of stake sale to the tune of 11% by Subhash Chandra Goel’s Essel group, promoter of Zee Entertainment Enterprises Limited (ZEEL) to Oppenheimer Developing Markets Fund (ODMF) is expected to bring in some good news for the company and its shareholders. ODMF is expected to buy another 11% stake (it already holds 8% in ZEEL since 2002) in ZEEL for Rs 4,224 crore, giving much relief to the debt-laden Essel group, which has been grappling with a debt amount as high as Rs. 16,000 crore. 

In a communication to the stock exchanges after trading hours closed, ZEEL issued a statement giving out details of the transactions. Punit Goenka, MD and CEO of ZEEL, said, “I am extremely glad to share that the fund as a financial investor has further reposed its faith in ZEEL. It also gives me immense pleasure to note their strong belief and trust in the intrinsic value of our precious asset. It is the valuable belief and support of our esteemed financial investors that enables us to consistently generate great value, year after year.”

The Invesco Oppenheimer Developing Markets Fund, an investment company registered with the US Securities & Exchange Commission, has a long history of investing in India as a financial investor. The fund has been a financial investor in Zee Entertainment Enterprises since 2002.

LKP Securities in a research note to its clients said, ODMF, one of the oldest investors of Zee has agreed to buy out up to an 11% stake (holding 7.74% stake in Zee as of June 2019) for a consideration of Rs. 42.24 billion. The tax liability on this amount will be very insignificant. The buyer is a financial partner (completely equity transaction only) and not a strategic one. By that virtue, Zee will be maintaining their operational control. The preference was given to a financial partner as this transaction will happen quicker than the strategic one. The deal is valued at Rs. 400 equity share.

Commenting on the development, Ashwin Patil, Senior Research Analyst, LKP Securities said, “We believe this development to be a positive step towards meeting Zee’s desired target of stake sale by 30th September. We expect the management to achieve success in meeting this deadline by doing a further stake sale and sale of non-media assets. Despite the strong operational performance, the stock was under an overhang of the stake sale, which will be reduced up to some extent post this news. Amassing the rest of consideration will remain a key monetizable over the next two months. We maintain Buy rating on the stock with a target price of Rs 425."

Out of the total Rs 11,000 crore outstanding debt against the pledged shares, the rest will be achieved by selling their non-media assets (Solar, Roads and Transmission businesses) and a little more stake sale to a financial investor, with whom they are discussing some non-binding offers currently, LKP said in the note.

There is also, a possibility that they may sell some of their media businesses, too. Management sounded very confident about meeting the September 30 deadline of the standstill. The promoter stake will go below 25% post this deal from the current level of 35%, the LKP note said.

On Wednesday, however, the ZEEL stock suffered a set-back, in-line with the overall market trend. It lost Rs 20 (down 5.25%) to close at Rs 361.60 on the NSE, where it clocked the trading volume of 1.49 crore shares.