INSUBCONTINENT EXCLUSIVE:
Shares of Subhash Chandra's Zee Entertainment Enterprises have fallen to the lowest level in five yearsMedia giant Essel Group, run by
industry mogul Subhash Chandra, is seeking an extension to repay debt in order to avoid creditors liquidating its shares.The company faces a
month-end debt repayment deadline
If that's not met, creditors can sell shares in the group's flagship Zee Entertainment Enterprises Ltd
kept as collateral against loans
The case highlights broader risks that borrowings backed by stock pose to the equity market
There's a lot at stake with share-backed loans currently at about Rs 1.9 lakh crore ($26.5 billion).Essel Group's Mr Chandra is seeking
to sell assets ranging from a stake in the nation's most valuable publicly traded TV network to roads
Shares of his Zee Entertainment Enterprises Ltd
have plummeted to the lowest level in five years."We have certainly discussed the point pertaining to the extension as well, purely in the
interest of deriving the right value for the precious assets," said Punit Goenka, managing director and chief executive officer at Zee
Enterprises in an emailed response, "The lenders have noted our view and have been extremely supportive."The media tycoon's challenge is
the first of what could be a string of tests this year for beleaguered business titans from Anil Ambani to the founders of the Emami Group
They have raised funds to expand their empires by pledging equity stakes in their firms and the clock is ticking as repayment dates
loom.Risks Mount"Not everybody is going to come out of this alive," said Jayanth R Varma, a professor at the Indian Institute of Management
in Ahmedabad, referring to the founder's funding predicament
"I can't imagine that all the groups that are in trouble today will be able to sort out their mess."Chandra has already sold $614 million of
its Zee Entertainment Stake to Invesco Oppenheimer Developing Markets Fund and has agreed to sell his solar power projects for $182 million
to Adani Green Energy Ltd
The Essel Group has begun paying back creditors, including about half of the Rs 395 crore ($55.7 million) it owes Kotak Mahindra Asset
Management Co., Harsha Upadhyay, chief investment officer for the asset management firm said in an interview.Broader ConcernsShares of
publicly traded firms with a large portion of equity pledged as collateral risk abrupt declines should lenders move to recover their dues
For instance, Mr Chandra's Zee Entertainment lost $1.6 billion in market capitalization in a single day on fears that creditors would
For Anil Ambani's Reliance group, the sale of shares held as collateral reduced the market capitalization of its companies by nearly 55
per cent in just four days, the group said in a filing earlier this year.Meanwhile, Reliance Capital, part of Anil Ambani's group, was
downgraded to default grade at Care Ratings Ltd
last week after a delay in coupon payments on some of the lender's debt
The company said in a statement that the delay was caused by a technical glitch in an exchange filing
A spokesman for Reliance group said that Reliance Power Ltd
and Reliance Infrastructure Ltd
have signed inter-creditor agreements with their lenders and that Reliance Infrastructure "aims to be zero debt" in 2020.A spokesman for
declined to comment.Should Essel group clear its debt hurdles, equity investors will still need to keep a close eye on the progress other
conglomerates make in slashing debt, as companies' credit quality endures the longest streak of deterioration since 2014."Stocks are getting
decimated on their market cap, some company founders have realized their error and are liquidating assets," said Sanjiv Bhasin, executive
vice-president at IIFL Securities Ltd
"Prudent risk management is the order of the day."Get Breaking news, live coverage, and Latest News from India and around the world on
TheIndianSubcontinent.com
Catch all the Live TV action on TheIndianSubcontinent 24x7 and TheIndianSubcontinent India
Like us on Facebook or follow us on Twitter and Instagram for latest news and live news updates.
