Essel group companies' shares fall 2-10%; Reliance Mutual Fund exits

Shares of Essel group companies fell 2-10 per cent on Wednesday on worries about its stake sale getting delayed. Meanwhile, Reliance Mutual Fund (MF) unwound its loan-against-shares (LAS) exposure to the group. Sources said the fund house recovered over Rs 400 crore of its debt exposure by liquidating the promoters’ pledged shares held as collateral.  

While the group is seeing some pressure from the lenders to expedite its stake sale process, Punit Goenka, MD & CEO of Zee Entertainment, said it was on and would be finalised in six-eight weeks.

Sources said Reliance MF had decided to stay away from the ‘standstill’ agreement with Essel group promoters. According to the agreement — which got consent from most lenders — promoters have been given time till September 2019 to repay the loans. Further, lenders would not sell the pledged shares of the group companies during this period. 

Sources suggest that MFs with LAS exposure to the Essel group's promoter entities want the group to fast-track the asset monetisation plans even if it requires accepting bids that are at lower valuations than what Subhash Chandra and family expect. 

“We have been putting pressure on the promoters to expedite the process as it is the unit holders' money that hangs in the balance. We also want them to be open to the idea of monetising their asset at lower-than-expected valuations and not let it become a stumbling block,” said the CEO of a fund house having exposure to the group. Over the last two days, the shares of Essel group stocks have corrected 3-14 per cent, with the flagship company Zee Entertainment (ZEEL) seeing the largest drop during this period.

Moreover, the correction in share prices has come amid heavy volumes. On Wednesday, 70.3 million shares of ZEEL exchanged hands, which was seven times the six-month average volumes seen on the counter. Shares of Dish TV also saw around twice the six-month average volumes on both Tuesday and Wednesday. Dish TV shares have corrected 10 per cent in the last two days. 

The fall in share prices has come amid talks of lenders getting concerned with ZEEL's stake sale hitting a hurdle and talks of auditor-related issues in the company. Both the claims have been strongly refuted by the group. 

"There has been no sale of pledged shares as of yesterday (Tuesday). As communicated in its official statement issued on May 7, the group wishes to reiterate that the process of stake sale is at an advanced stage. The group has received two non-binding term sheets and the overall process of stake sale is well within the purview of the September 2019 timeline,” the group said. 

“As far as the rumours pertaining to the auditors are concerned, the group wishes to deny the same. The audit of the standalone and consolidated financial statements for 2018-19 is very much in progress by the statutory auditors of the firm (ZEEL) — Deloitte Haskins & Sells. The firm has also scheduled the meeting of the board of directors on May 27 and on the same date the Q4 results will be declared,” a spokesperson said.  

Earlier, ZEEL was believed to be in talks with Japanese entertainment major Sony, but the talks fell through due to differences over valuations, sources had said. Both the firms did not confirm the development.  

Among the group companies, the highest levels of promoter pledging is in Dish TV, which has 94 per cent of promoters' holding pledged. Zee Media (93.8 per cent), Siti Networks (90.7 per cent) and Zee Learn (82.7 per cent) are the other entities where the promoter pledging is high. The group's flagship company — ZEEL — had about 66 per cent of the promoters holding pledged with various lenders as of March 2019.