Brickwork downgrades Zee Entertainment's preference shares with outstanding of Rs 1,210 crore

Zee Entertainment Enterprises said on Monday that Brickwork Ratings has revised its outlook for 6 per cent cumulative redeemable non-convertible preference shares with outstanding of Rs 1,210.16 crore.

The rating has been revised from AAA with negative implications to AA-plus with negative implications.

Brickwork said the downgrade factors in deteriorating financial flexibility of the group marked by an increased pledge of promoter holding, continuous volatility in share price movement resulting in a substantial decline in market capitalisation, and the promoter group's inability to repay full debt against pledge of company shares as per committed timelines.

The rating, however, continues to factor in the established track record of promoters of over two decades in the Indian television broadcasting industry, apart from the satisfactory financial profile as reflected in an increase in the scale of operations along with low debt and adequate cash and cash equivalents.

There have been reports that media baron Subhash Chandra could lose control of Zee Entertainment Enterprises as a group of asset managers, non-bank lenders and foreign portfolio investors -- which had extended loans to Zee's promoter group companies against share pledges -- plans to put their pledged shares in an escrow account in preparation for a sale.

The lenders to Chandra's cash-starved Essel Group firms (which are promoters of Zee) have already initiated discussions with potential bidders, including strategic investors, to sell off the entire bulk of pledged shares.

Large investors like Sony Corporation and Rupert Murdoch's News Corporation have reportedly shown interest to buy Zee's shares that are to be put up for sale in the escrow account.

The cash-strapped Zee promoters have around six months to come up with over Rs 7,000 crore to repay debt. Over 90 per cent of the promoter stake is already pledged, with 10.7 per cent pledged with Russia's VTB Capital.