Zee’s stake sale doesn’t calm its nervous investors, stock falls by over 5%

• Zee Entertainment sold 11% stake to a US based fund Invesco Oppenheimer for ₹4,224 crore.
  
• This sale places the value of each share at ₹400, yet today the shares are trading at ₹337.
  
• The promoters of Zee Entertainment pledged as much as 66% of their shares with banks.
  

The shares of Zee Entertainment fell by 5.6% in early trade — the first trading session since it announced a sale deal. Late yesterday, the debt-ridden company managed to sell 11% stake to a US-based fund Invesco Oppenheimer for ₹4,224 crore.

This sale places the value of each share at ₹400. Yet, today the shares are trading at ₹337 at 11 am and brokerages have a ‘Sell’ view on the stock.


Debt Deadline

With this sale, Zee Entertainment’s ability to repay debt improves and reduces its risk. Yet, investors and stock brokers are worried over promoters of the Subash Chandra-led company pledging as much as 66% of their shares with lenders. It means that banks now hold these shares as surety against their heavy debt, which will be released once they repay it as per schedule.

There’s also a looming debt repayment deadline where they have to repay ₹7,500 crore by the end of September.


This means the company has a little less than two months to pull off another deal. The company has been trying to assure its nervous investors saying that it will ‘start’ the repayment process with the proceeds gained from the recent sale.


Tick Tock

Essel Group which owns Zee Entertainment is also in the process of selling its non-media assets to ensure it holds on to its debt repayment obligations. For investors, time is of the essence.


“The promoters’ plan to sell additional stake would still not fulfill their entire obligation for loans against shares. The announcement of a stake sale in non-media assets and the timeline for fund inflow would be the key for bankers and lenders,” said a report by Emkay Brokers.


Brokers and investors will wait and watch how the company will complete the promised sale, generate free cash and remove shares from the pledge.


They will also be watching how the traditional media business will unfold as Reliance Jio aggressively expands its fixed line broadband across the hinterlands. This has the potential to affect and disrupt content consumption habits across the country.