The troubles started when Chandra decided to enter into infra business and took up endless loans
Subhash Chandra was known for his meteoric rise. After all, he added 59 channels in 25 years to shape his ‘jewel in the crown’. But soon he diversified, prodded probably by his connections with the government. As he rode fast and wide, he burnt rubber.
The troubles started when Chandra decided to enter into infra business and took up endless loans. And this business was built on the back of Zee Entertainment after Chandra family shares in the company were used as a collateral for fresh loans. He could not sustain the capital-heavy business and failed to pay off his debt
By January 2019, Essel failed to keep up with the debt payments. Soon, the lenders took over the founder family shares and sold it in the open market. Unsurprisingly, investors got nervous and Zee stock crashed 30% soon after. And that is how Chandra lost his shares and the value of his crown jewel at one go.
“In usual cases, infra companies have raised their hands and have left their lenders with non-performing assets, but in our case, my obsession of not walking away from the situation, has made me bleed ₹4,000 crore to ₹5,000 crore. Despite the loss making projects, we continued to pay the interest and the principle, by borrowing funds against our shareholdings in Listed Companies,” Chandra said in his emotional plea to investors this January.
The stock crashed on January 25 spread fear as rumours of money laundering spread. Most of its lenders and investors started selling out.
A debt pile of ₹11, 000 crore
Essel also sold 11% in Zee Entertainment to Invesco Oppenheimer Developing Markets Fund for ₹4,224 crore earlier this year. The sale proceeds however was not enough to pay back the debt. The group then struck a deal to sell another 15% in Zee, reducing promoter stake to 5%.
As of September 2019, Chandra and his son Goenka had to repay about ₹11,000 crore to the Essel Group. While almost half the debt is paid, Chandra has time till March 31, 2020 to pay the other half.
His debt was so huge that rumours started doing the rounds that Chandra will leave India just like Kingfisher’s Mallya.
Subhash Chandra lost half of his wealth in a year
The 69-year-old Chandra is still the 916th richest person in the world with a net worth of $2.5 billion, according to Forbes. In 2019 though, he was one of the seven billionaires in India who exited from Forbes India rich list 2019 after his net worth tanked furiously.
His net worth was at $5 billion in March 2018 which reduced by half in 2019. This is after the massive sell off and consequent value erosion.
All of Chandra’s other businesses that failed also depleted his personal wealth, and his crown jewel. “In Chandra’s case, loans were taken to fund education, green energy and financial services ventures, among others. Eventually, the loan covenants forced him to seek a moratorium on payouts and sell a part of his family silver Zee Entertainment to Oppenheimer Developing Markets Fund,” explained Forbes why Subhash Chandra lost his wealth.
Investors who were worried of promoter stake sale did not take to Chandra’s exit nicely either. All of Zee stocks tanked 9% to hit its intraday low of ₹312.5 apiece on the day his exit announcement was made.
Few investors took note of the fact that promoters’ problems had not affected the Essel group’s performance. Essel’s consolidated net profit rose 7.40% to ₹2,122 crore in Q2FY20 as compared to ₹1,975.90 crore in Q2FY19.
