Who owns your media: How Subhash Chandra’s zeal for diversification wrecked his Zee empire

What went wrong?

WrittenBy:Anto T Joseph
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When their initial agreement to buy the old DNA printing press in Mahape, an industrial town in Maharashtra, was signed in July 2019, the Shah family who own Gujarat Samachar hoped to wrap up the Rs 16.5-crore deal quickly. But the affluent and influential Gujarati family had to wait a little longer.

Though DNA shut in October 2019 and its management sacked over 220 journalists and press workers soon after, the owner of the popular but ever-bleeding Mumbai newspaper, Subhash Chandra’s Essel Group, could not sign on the dotted line. The sacked workers didn’t accept the terms of the retrenchment package offered to them and dragged it to the labour court. Unaware of the fate, the dusty press waited for over two years to start rolling again.

The buyers used the delay to drive a hard bargain and managed to slash the price tag to Rs 12 crore.

For Chandra, the deal was one of several that turned sour as he got entangled in a financial mess starting mid-2018.

A few months before the 14-year-old newspaper breathed its last, Chandra told journalists at a town hall meeting in Worli's Continental Building: “We have decided to give DNA another try. I can’t fund the newspaper any longer, it has to stand on its own. For DNA, this has been like Lord Rama's 14-year long exile in the forest.”

But DNA's life after exile ended pretty soon, on October 9, 2019.

Its owner, Diligent Media Corp Ltd, or DMCL, formed after demerging Chandra’s print media business from Zee Media Corporation Ltd, or ZMCL, in 2016, kept a couple of journalists on its rolls to keep the website dnaindia.com alive. DMCL continues to be listed on stock exchanges, its share price hovering around Rs 2.50 as on July 25, 2021, nearly eight times more than its 52-week low of 33 paise. The penny stock is a perfect profit-making machine for a bunch of unscrupulous investors.

Dinesh K Garg, executive director, finance, and CFO, of ZMCL, said in a regulatory filing that his company was in discussions with DMCL for the recovery of Rs 309.69 crore (a settlement amount of Rs 290 crore and other receivables of Rs 19.69 crore). ZMCL, which regularly funded the newspaper, had issued a corporate guarantee for non-convertible debentures, or NDCs, totalling Rs 250 crore via Pri-Media Services, the then wholly-owned subsidiary subsequently merged with DMCL.

The NCDs were due for redemption by DMCL on June 30, 2020, at Rs 438.9 crore, including premium. But the now-defunct DMCL was nearly bankrupt, with no operational revenues. The debenture trustee, acting on behalf of the bond buyers, was forced to invoke the corporate guarantee issued by ZMCL, and asked it to make a payment of Rs 457 crore. With no option left, ZMCL settled the liability.

DMCL has now informed them that the fair value of its tangible and intangible assets as per an independent valuation report is more than the amount payable to ZMCL. In the previous financial year, however, ZMCL had written off its investment in DMCL and provided for an impairment loss of Rs 332.92 crore.

Sale of ZEEL

On June 21, 2021, Zee Entertainment Enterprises Ltd, or ZEEL, tried to scorch rumours of its potential merger with Viacom18, owned by Mukesh Ambani’s Reliance Industries Ltd.

In a regulatory filing, ZEEL denied such a move and called the news report “speculative”.

Viacom18 is a joint venture between TV18 Broadcast Ltd, which holds 51 percent stake, and US-based ViacomCBS Inc, which has 49 percent. TV18 is a part of Network18 Media and Investments Ltd, majority owned by a wholly owned subsidiary of Mukesh Ambani’s Reliance Industries.

Just a week earlier, on June 14, the stock exchange had sought a clarification from Network18 as its shares flared up over 30 percent. In a response to the exchange’s online surveillance department, the company said it had no disclosure pending.

The stock market refused to swallow the denial.

Sale or no sale, Chandra’s stake in the once-a-jewel in the family crown has fallen below four percent, down from 41.62 percent, in three years flat. A clutch of foreign portfolio investors such as Invesco Oppenheimer Developing Markets Fund and Vangyard International Value Fund hold 57.46 percent stake in ZEEL. Insurance companies, including the Life Insurance Corp of India, and mutual funds have cornered a decisive 18 percent stake. A relatively new entry, OFI Global China Fund, owns 10.14 percent.

A close look at ZEEL shows how Chandra made diligent efforts to sell his stake in the past two years, to absolve him of loan obligations. On November 25, 2019, Chandra stepped down as chairman. In August 2020, he was made chairman-emeritus. His son Punit Goenka has continued as managing director and CEO.

The last empire

For Chandra, ZMCL stands like the last fortress of a vanquished king.

His stake in ZMCL is steadily declining as well. On July 2, 2021, two group companies – 25FPS Media and Arm Infra – informed stock exchanges that a part of their holding, amounting to 3.4 percent or 1.6 crore shares, was invoked by IDBI Trusteeship Services on behalf of its debenture holders. The promoters’ stake has now slipped to 11.32 percent.

At the end of the June quarter, the promoters’ stake in ZMCL stood at 14.72 percent, after lenders had invoked pledged shares totalling 3.4 percent in the first quarter.

Many wonder what went wrong with the once-flourishing Essel Group. Since early 2019, Chandra has been seeking safe harbour for his embattled group. Beyond his forte of media and home entertainment, he had tried his hand at infrastructure, finance, education, cruise lines, among other enterprises. It was an audacious expansion. But most of the companies drowned in a flood of debt.

Though he sold his bleeding cruise shipping business to US-based billionaire hotelier Sant Singh Chatwal, the new company that owns the ship is still operating from Chandra’s headquarters, Continental Building.

Like many Indian businesspeople, Chandra operated with a web of subsidiaries and shell companies, numbering over 500, until a few years ago. He shut down several of them as the pressure mounted on the group, and by the end of 2018, high levels of debt and defaults had taken the group to a flashpoint.

What created a mess is that most of his stocks were pledged as collateral against loans availed by the group companies. As the stock price of ZEEL went on a downward spiral, Chandra faced a huge margin-call pressure. Promoters face a margin-call threat when the stock price falls below the required level for a loan. It was like a trap set by the stock market. The collapses of Yes Bank and the lender IL&FS and their impact on the financial market constricted Chandra’s ability to raise additional debt and plug the hole. Selling his shares at the beaten-down price was the only option.

A Friday confession

On the evening of January 25, 2019, Chandra did something unusual for an Indian promoter.

It was a Friday, the day after a report in the Wire claimed that Essel Group was being investigated for making a large deposit after demonetisation in November 2016. The Serious Fraud Investigation Office, the report said, was investigating a company called Nityank Infrapower, formerly Dreamline Manpower, for depositing over Rs 3,000 crore just after demonetisation.

As the stock market opened in the morning, the ZEEL shares dropped dead. The stock plunged 33 percent intraday to hit a 44-month low of Rs 288.95 a share, pulling down its market value by a massive Rs 14,000 crore in a day. There were more margin calls.

Chandra knew the ground beneath his feet was giving way. His plan to sell the family jewel, which he founded 26 years ago, and pay off the liabilities had suffered a severe blow. He penned an open letter asking all his creditors to remain calm and promising that he would repay the loans, but without specifying a timeline. He blamed some “negative forces” who attacked the ZEEL stock to sabotage the sale process.

Who were these “negative forces”? Some in Essel Group pointed fingers at an Indian corporate giant that had nurtured dreams of making it big in the media and entertainment space. But there was no confirmation. The only clue Chandra left was that these forces had been at work since May-June 2018, sending anonymous letters to bankers, NBFCs, mutual funds and shareholders. Some in the group said the “negative forces” had previously approached Chandra to take over ZEEL but he refused emphatically.

Chandra’s letter, which was described by many as a “corporate bombshell”, offered “sincere apologies” to his lenders.

According to Chandra, he’d made some “incorrect bids” in Essel Infra. Despite the projects having run up losses, he continued to service the debt, borrowing against promoter shareholding in listed companies. “My obsession of not walking away from the situation has made me bleed up to Rs 5,000 crore,” he confessed in his letter.

Another mistake was the acquisition of Videocon d2h. “My recommendation made to my brother Jawahar Goel to buy d2h from Videocon was one more key error, which cost me and Jawahar a fortune,” he said.

Being the elder brother, Chandra had dutifully shouldered Essel Group’s entire debt burden when the family business separation had been implemented a few years ago, he said in the letter.

If anything, Chandra’s confessions only compounded his woes. Nothing could stop his group companies from sinking further on the stock market. As promised, Chandra sold most of his stake in the group flagship ZEEL, albeit after a few aborted attempts, to pay creditors and ward off potential criminal cases.

On display was a classic case of bungling. Three publicly held group companies – ZMCL, Zee Learn and Dish TV – have ended up being penny stocks with share prices of Rs 13.40, Rs 15 and Rs 13.80, respectively, as on July 25. Running out of options, Chandra wrapped up or sold most companies under the banner of Essel Infra and Essel Finance. Another big group company, Essel Propack, was sold off to private equity player Blackstone.

A few thousand people were rendered jobless.

MT Educare, which Chandra took over in February 2018 for Rs 200 crore (followed by an open offer at Rs 72.76 a share) is currently hovering at around Rs 8.60 per share on the stock market. His 59 percent stake is valued at a mere Rs 37 crore.

Essel Group was also partly instrumental in Yes Bank’s collapse, and Chandra was facing an Enforcement Directorate inquiry. “I have been requested by the ED to make a statement on the information which is already available with them. I will be more than happy to be personally present at their office, honouring their request, in order to extend all the required cooperation,” Chandra tweeted on March 20, 2020. Nobody knows the status of the investigation now.

Defaults by Essel Group companies had shaken the ground for some leading mutual funds as well. In May 2020, Franklin Templeton Mutual Fund announced a default on the debt issued by Essel Infra. The nonconvertible debentures were also backed by Chandra's personal guarantees.

While some fund houses such as ICICI Prudential, Kotak and Aditya Birla Sun Life recovered their money after the group raised funds through the stake sale, others received only a part of their money.

Many at ZEEL recollect how Punit Misra spoke of doubling the domestic broadcast company’s market capitalisation when he joined as CEO nearly five years ago, when its m-cap was in the Rs 35,000-crore range. The group’s diversification and overhang of debt, however, hit ZEEL as well and the initial enthusiasm soon fizzled out. Today, the company’s market cap stands at around Rs 19,800 crore and Chandra’s remaining four percent stake is currently valued at around Rs 790 crore. A majority of it’s held by three group entities registered abroad – Essel Media Ventures, Essel Holdings and Essel International Holdings.

“In the last couple of years, ZEEL’s focus has been on reduction of debt, corporate governance and transparency. The board is pretty strong, with the chairman leading from the front. Punit Goenka, managing director & CEO, is reporting to the board,” a source told Newslaundry.

A hardcore nationalist

Chandra is known to be an ardent supporter of the Narendra Modi government. No wonder Zee News and other television news channels run by his group have been unabashedly on the Hindu nationalist side, stirring up controversies frequently.

In May 2015, he took some top editors like Sudhir Chaudhary to far-flung villages. The idea was to get a sense of what rural folk liked and disliked on news television. Instead of appointing a research agency, he took them directly to the target audience. “A villager in Meerut told us to our face that 'Sub bika hua hai”, every news channel is sold out, Chandra told a select gathering of journalists ahead of the launch of his English news channel, later christened WION. “But after a brief discussion, the same person also told us that you are our last hope.”

With WION, he wanted to build an India narrative for international news, like how Al Jazeera looked at the world from the Middle East perspective and BBC from a UK perspective. He always believed in the media's "soft power" that could influence the new generation's political thinking.

On August 7, 2015, a worried Chandra met journalists at a hotel in Mumbai. He was agitated about the absence of a “regulatory framework” to rein in the mushrooming of TV news channels. There were no stringent rules in place like the “Reserve Bank of India’s fit and proper criteria” to remove their corporate veil and get to the bottom of their funding, he complained.

“Unfortunately, our system doesn't go even one layer beyond what the owner has submitted as part of his application. I will not be surprised if the money trail ends at Dawood Ibrahim," Chandra said. This, according to him, compromised national security.

The political rhetoric and outrage with which Zee News anchors presented their daily shows mirrored Chandra’s views and assessments. A close-knit group of executives, called the chairman’s team, kept floating ideas that routinely became discussion points on Zee News.

Chandra, hailed as the “father of Indian television” and a visionary, was probably unaware that his lieutenants kept a tab on editors and CEOs, and made wrong calls. DNA, for instance, saw more than a dozen editors and as many CEOs exit in its 14 years, with their average shelf life being a year, even as Chandra claimed his media empire was “run professionally” without interference.

His brash and aggressive ways, mostly bordering on irrational, complemented the work culture of a typical family-owned and brazenly centralised business. Everyone called everyone else with a “jee” suffixed to their first names, which critics openly mocked as the “jee culture”.

In June 2016, Chandra’s election to the Rajya Sabha was more exhilarating than the Haryanvi folklore. Backed by the BJP, he was elected after the votes of 12 Congress leaders were rejected because they had used the “wrong pen”. Though what prompted the legislators to use the wrong pen and render their votes invalid remains a mystery, the fracas created a new record of sorts in Indian politics.

Sources told Newslaundry that Chandra was unlikely to get another chance to go to the parliament.

After a long fight, hundreds of sacked employees at the DNA press won a retrenchment package two months ago. The deal was struck after DMCL entered into a sale agreement with the potential buyers of the press and the land. DMCL had signed three separate sale deals with CtrlS, a data centre company, for selling the land at Mahape, where the DNA press is situated. While DMCL sold two adjoining plots for Rs 70 crore, the third piece – initial agreement signed for another Rs 70 crore – can be handed over only after dismantling the press, which is currently in the process.

Sources close to the Gujarat Samachar promoters said they were fed up with Essel Group's “irresponsible behaviour” after having paid Rs 4 crore in advance for the printing press.

“Nearly two years have gone. We will close the chapter in the next couple of weeks, hopefully,” said one of the promoters.

Editor’s note: Anto T Joseph has filed a case against DNA in Mumbai’s labour court.


This story is part of the NL Sena project, which over 75 of our readers contributed to. It was made possible thanks to Gaurav Ketkar, Pradeep Dantuluri, Shipra Mehandru, Yash Sinha, Sonali Singh, Prayash Mohapatra, Naveen Kumar Prabhakar, Abhishek Singh, Sandeep Kelvadi, Aishwarya Mahesh, Tushar Mathew, Satish Pagare, and other NL Sena members.

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