During the previous week, the big news on the business circuits was that the beleaguered Zee group had reportedly managed to find a buyer for the promoter stake in Zee Entertainment. However, the markets were not really enthused by the deal and if the Zee price performance is any indicator, the stock has corrected nearly 10% after the deal announcement. There are still a number of questions that remain unanswered by the deal. Here are four such questions.
Deal is yet to be signed off
In the midst of all the euphoria it still needs to be remembered that the deal is yet to be signed off. The INVESCO Oppenheimer Fund is yet to confirm the deal from their end and as we have seen in the past there is many a slip between the cup and the lip. The deal is still just an expression of intent.
Valuation could be the issue
Zee’s earlier deal to sell a stake to US based Comcast did not go through on valuation considerations. In this case, the deal has been struck at Rs.400 per share, which is far lower than what the lenders were expecting for the stake sale. After the financial dealings with group companies became public, some of the investors have been worried. The skewed TRAI order on tariffs has also not gone down too well with investors. Valuations will remain an issue!
Do the numbers add up?
Actually, it is hard to fathom how the numbers will actually add up in this case. The deal with INVESCO has been struck at around Rs.400 per share so the 11% stake sale will help the promoters to raise nearly Rs.4224 crore. Zee promoters had originally planned to sell 20% of their stake by September but they have apparently managed to only get buying interest to the tune of 11%. That leaves a huge shortfall. The promoter debt via pledges is currently at Rs.13,000 crore. Out of this overall debt, Rs.7,000 crore is payable to the Indian mutual funds by September as part of the standstill agreement. It is not clear whether banks will allow Zee to prioritize mutual funds over banks. This continues to remain a major issue!
What about promoter role?
Over the last 25 years, Subhash Chandra has been synonymous with the Zee group in India. The promoters have 35% stake in the company. With the 11% stake sale, the promoters will be left with just 24% and if the 20% stake sale actually goes through then the promoters will be left with just about 15%. That would effectively mean that the promoters would lose management control of the group. A lot of the current agreements with lenders are verbal in nature. How these deals stand remains to be seen. Next couple of months could be interesting on the Zee front! ©