Subhash Chandra and the race to the bottom

Pledging shares when credit froze has Chandra’s two strong media arms in a tight spot.

ByTeam 101Reporters
Subhash Chandra and the race to the bottom
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In the 1990s, media tycoon Subhash Chandra had rejected American media mogul Rupert Murdoch’s hostile takeover bid, proudly asserting that “India is not for sale”. At the time, Chandra had launched the first satellite channel of India—Zee—when the government of India had monopoly over the broadcasting industry. His cold snub to Murdoch could be seen as overconfidence. But a look at what he managed to build over the next 20 years shatters all such notions.

With a keen eye for content and the right business acumen, Chandra turned Zee into the highest revenue grosser in the media industry. His bouquet of 76 channels boasted an unheard of reach of 1.3 billion viewers in 173 countries. Chandra’s other listed venture, Zee Media Corporation, had also grown multi-fold, with 327 million viewers and 14 news channels.

Having built a formidable media empire, Chandra, who chairs the Essel Group, diversified into non-related businesses, including amusement parks, packaging, infrastructure and lotteries. But the tides, as is evident, have turned. While he successfully warded off the takeover attempt in the Nineties, his fortunes have nosedived in the past six months. A debt-riddled infrastructure business coupled with allegations of money laundering have meant that Chandra cuts a sorry figure as he makes his last ditch effort to survive.

Chandra is now forced to sell off stake in what he describes as “the jewel of his crown”: Zee Entertainment (ZEEL). Controlling 40 per cent stake in ZEEL, he’s now offloading half of that as the debt at the group level spikes and refinancing becomes difficult due to the default of IL&FS.

According to media reports, the debt burden of the group stands at Rs 17,000 crore across 87 companies. Adding to Chandra’s woes, the stock price of Zee Entertainment and Zee Corporation collapsed with investors taking the flight to safety approach. On January 25, Zee Entertainment and Zee Media Corporation sunk 33 per cent and 37 per cent respectively, leaving Chandra in a tight spot. In February, the Zee group-owned Daily News Analysis also announced the closure of its Delhi and Jaipur editions.

Beginning of woes

It all started on January 25, when shares of Zee Media Corporation and Zee Entertainment tumbled after The Wire reported that Subhash Chandra’s Essel Group has links to a company probed by investigators for money laundering during demonetisation. The Serious Fraud Investigation Office (SFIO)—which is currently probing a company named Nityank Infrapower for deposits of over ₹3,000 crore made just after demonetisation (November-December 2016)—had ties with Chandra’s group. The Wire’s investigation of publicly available documents revealed that Nityank and a group of shell firms carried out financial transactions that involved a few firms associated with the Essel Group between 2015 and 2017.

According to the news website, Nityank also went on to play a crucial role in a large business deal between the Videocon and Essel Groups in November 2016, leading to a Delhi high court case. Essel Group maintained that Nityank is an independent firm, while Videocon alleged otherwise.

The case can be traced back to the National Company Law Tribunal (NCLT). Nityank had approached the NCLT to prevent allotment of shares to a Videocon Group company, Domebell, in the merged Dish TV entity. The company claimed that it had a pledge on Videocon D2H shares owned by Domebell and hence they should be allotted to it.

However, Domebell and a group of other Videocon companies such as Electroparts approached the Delhi High Court on August 31 last year claiming that Nityank is an Essel Group company and had unlawfully invoked a pledge.

While the case goes on, these damning allegations of links to a tainted company have come at a wrong time for Chandra. Essel Group is bearing the brunt of massive debt at the group level and the promoters have pledged a portion of their shares in the listed entities as collateral. The group’s non-media entities, especially Essel Infrastructure, has been making losses due to some “incorrect bids”.

And as the cost of borrowing goes up after the IL&FS crisis, Chandra is finding it difficult to raise money to service debt. In his emotional plea to the investors, he had stated that “as most of the infra companies, even we have made some incorrect bids”. He said: “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 added that the situation at hand became further unmanageable after the IL&FS issue came to public light. “Till then, we were managing our borrowings efficiently. The IL&FS meltdown stopped the roll overs, diminishing our ability to service our borrowings.”

Losing value

So how does the rising debt at the promoter level affect Chandra’s media entities which have recorded exceptional performance over the last decade? Deepti Chaturvedi of foreign brokerage CLSA states that the IL&FS crisis in September made refinancing of debt difficult, as a result of which the Essel Group decided to sell up to 50 per cent of their stake in Zee Entertainment. “Pledging on Zee’s share is not new, though recent rise in pledging levels coupled with fall in stock price have resulted in risks of pledges being invoked,” says Chaturvedi, adding that after the price fall, the total market value of promoter holdings has equalled its pledge cover as of December last year.

With Chandra facing the daunting task of reducing the debt and battling allegations of corruption, investors are also gripped with fear that the shares pledged against loan will lose value if the situation doesn’t improve. Since Essel’s stake of 59 per cent in Zee Entertainment is pledged as collateral to borrow money from creditors, shares are at risk of being seized or dumped if the price falls. According to the management, the stock crash of January 25 triggered various covenant breaches but the group reached an understanding with 97 percent of its lenders. “There was fear in the market that probe agencies might launch an investigation into the money laundering allegations and as the prices start to plunge, the lenders and investors started selling shares which were pledged against loans,” says an analyst from a large domestic brokerage firm.

Over the last two months of 2019, promoter entities have sold shares worth ₹46 crore in Zee Media Corporation, which includes news division. They have also sold shares worth ₹884 crore in Zee Media Entertainment.

However, even as controversy and concerns swirls around Chandra and his group, the two listed media entities have delivered strong performances in these turbulent times. Zee’s reported strong December quarter results with revenue growing by 17.9 per cent year-on-year to ₹21.67 billion as advertising revenue and domestic subscription revenue expanded. Advertising revenue grew by 22 per cent YoY due to heavy advertising spends by corporates, the success of Zee’s channel portfolio and growing digital business.

Similarly, Zee Media Corporation too reported topline growth of 22.7 per cent YoY to ₹1,942.2 million led by strong performances across national and regional channels aided by the election tailwind and delayed festivities. In the national bouquet, Zee News witnessed a yield increase of three per cent QoQ while Zee Business’s market share during stock market hours increased to 35.5 per cent in 3QFY19. “All the national channels except WION (a global channel), namely Zee News, Zee Business, and Zee Hindustan, are witnessing steady traction both in terms of yields and average time spent,” says Jinesh Joshi, a media analyst at Prabhudas Lilladher.

But Chandra’s print business isn’t performing as well as the TV segment.

Owned by Diligent Media Corporation Limited, an Essel (Subhash Chandra) Group company, DNA had its fair share of disappointment this year as two of its editions shut down in Delhi and Jaipur. Chandra’s debt woes cannot be linked to DNA’s decision to cut costs. A media analyst, who has been tracking print media for five years, claims, “The editions were shut not due to the rising debt at promoter level but instead the curtains were brought on it because the DNA newspaper isn’t able to generate revenue. The newsprint cost as well as competition is rising, making the editions unviable.”

Media reports also suggest that a major reason behind the shutting down of the Delhi edition was because of the absence of advertisements from the Aam Aadmi Party-led Delhi government. Most newspapers depend on government revenue to bridge the gap between cost and revenue. An absence of advertisements from the state government for a city daily can be a challenge.

While financial TV media entities of Chandra are going strong, the dilution of promoters’ stake is at least expected to adversely impact their performance. “If the promoter who has played a major role in the rise of the channels ceases to have a say in the entities then it’s a cause of concern for the firms. Whether the new management manages to keep up the pace of growth will have to be seen,” says the analyst, who wishes to remain anonymous. And while Sony TV is in talks with the Essel Group’s management to buy a 20 per cent stake in Zee Entertainment and several other major players are also in the fray, the uncertainty continues to loom large as of now.

( is a pan-India network of grassroots reporters.)

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