Zee Entertainment CMP Rs.297 The share price of Zee Entertainment Enterprises (ZEEL), the satellite channel broadcaster, could come under severe pressure in today’s session as investors return to trade after absorbing news about possible offloading of promoters stake in the open markets.
The promoters Essel Group are desperately seeking funds to fulfill their debt obligations. The promoter’s action is induced by the decision of a group of asset managers, non-bank lenders and foreign portfolio investors to put ZEEL promoters pledged shares in an escrow account in preparation for a sale.
According to media reports, ZEEL promoters will sell a chunk of their holding in open markets today. Post this transaction, promoter stake will stand reduced to a bare minimum level.
It is likely that the shares would be gobbled by some mutual fund. However, the possibility of certain local competitors and a corporate giant may buy from the open market.
This will make the present management team more vulnerable. It may have to lose control of the company which Subhash Chandra founded almost three decades ago.
These lenders have already initiated discussions with potential bidders, including strategic investors, to sell off the entire bulk of pledged shares.
This is the second lot of lenders to initiate a process for the sale of Chandra’s stake in ZEEL.
Russian financial institution VTB Capital has also kick-started the process of selling 10.71% in the media company. Mint first reported on 15 October that VTB had initiated talks to sell the stake.
The second set of lenders is expected to transfer another 10.77% to the escrow account. As of now, the promoters of Essel Group own 22% shares in ZEEL. If the entire pledged holding is sold off, Chandra will be left with a 0.89% stake in ZEEL.
What does this mean for the Stock going Ahead?
We believe that over the longer term Zee offers entry into the India TV market (estimated at US$10bn) with media properties across genres and languages execution machinery and production capabilities in TV, which may find overlap for creating value in the digital OTT space (India OTT estimated at US$3bn by FY24e), double-digit growth in subscription income due to further scope for increasing TV penetration, coupled with the new tariff order and rise in high definition (HD) subs.
The market will be happy that the pledging factor overhang gets sorted out at the earliest as this has been the main reason for underperformance of the stock.
Operationally Q2FY20 was a challenging period with the company posting a negative operating cashflow but management was confident that it would bounce back in the H2.
The current sale block in the markets could be quite large in excess of Rs 10000 crs as per media reports with key lenders being Edelweiss, HDFC AMC, Birla Mutual Fund and Indostar Capital which are the lenders here
Net in the near term after rising sharply the ZEEL stock could come under pressure due to prevailing uncertainties till more clarity emerges on the share sell-off deal