Zee Entertainment, HDFC AMC likely to rally after Essel-Oppenheimer deal

Sunil Shankar Matkar

Shares of Zee Entertainment Enterprises are likely to see strong opening on August 1 after Essel Group signed stake sale deal with existing investor Oppenheimer Developing Markets Fund.

As per the deal, Oppenheimer Fund – one of the oldest investors of Zee – has agreed to buy out additional 11 percent stake in Zee Entertainment from its promoters for Rs 4,224 crore. The Fund already has 7.74 percent stake in Zee as of June 2019.

The Zee deal, as well as the DHFL deal, in an already-subdued environment where many companies facing liquidity crunch and high debt concerns is quite positive and will definitely revive sentiment that ruined in the last several months. It will reinforce trust among lenders and mutual fund houses which have large exposure to these kind of companies, experts feel.

Sanjiv Bhasin, Executive Vice President - Markets & Corporate Affairs at IIFL, told Moneycontrol that there should be a 3-4 percent upside in Zee with market sentiment being the key. And, the stock could see positive momentum as earnings were also very sharp for June quarter.

"It is a very positive step which should allay a lot of fears surrounding Corporate India with foreign investors’ exodus in the month of July. It will also see more non-core assets being sold in the next two months as company promoters get debt free with the obligation to repay mutual funds by September-end," he reasoned.

Meanwhile, in a separate news, DHFL said it had completed its stake sale in DHFL Pramerica Asset Managers Private Limited and DHFL Pramerica Trustees Private Limited to PGLH of Delaware Inc, and shareholding in Avanse Financial Services Limited to Olive Vine Investment Limited.

Currently, Essel Group owns a 35.79 percent stake in Zee Entertainment. Around 63.98 percent of Essel Group's holding in Zee Entertainment is pledged with lenders.

According to the release, the Essel Group aims to repay lenders by September, and it is confident to complete the overall process of repayment within the agreed timeline.

"Essel Group had initiated the process of divesting its key assets, with an aim to repay all the lenders by September 2019. During this divestment process, the Group has received a positive response from multiple partners expressing interest to buy the stake in ZEEL and the other key Non Media Assets," the company said in the release to the exchange.

The promoter stake will go below 25 percent after this deal from the current level of 35 percent.

Prashanth Tapse of Mehta Equities says, as mutual funds like HDFC MF, Aditya Birla Sun Life MF etc have the biggest exposure to Essel Group, the HDFC AMC will be in action on August 1.

Here is what analysts say about deal and its impact on Zee:

Ashwin Patil, Senior Research Analyst at LKP Securities

The buyer is a financial partner (completely equity transaction only) and not a strategic one. By that virtue, Zee will be maintaining their operational control. The preference was given to a financial partner as this transaction will happen quicker than the strategic one. The deal is valued at Rs 400 per equity share.

Out of the total Rs 11,000 crore outstanding debt against the pledged shares, the rest will be achieved by selling their non-media assets (Solar, Roads and Transmission businesses) and a little more stake sale to a financial investor, with whom they are discussing some non-binding offers currently.

There is also a possibility that they may sell some of their media businesses, too. The management sounded very confident about meeting the September deadline of the standstill.

We believe this development is a positive step towards meeting Zee’s desired target of stake sale by September 30. We expect the management to achieve success in meeting this deadline by doing a further stake sale and the sale of non-media assets. Despite the strong operational performance, the stock was under an overhang of the stake sale, which will be reduced up to some extent post this news. Amassing the rest of the consideration will remain a key monitorable over the next two months. We maintain BUY rating on the stock with a target price of Rs 425.

Sanjiv Bhasin, Executive Vice President - Markets & Corporate Affairs

The deal also sets the “cat among the pigeons” that good value for business will be available, and we feel the pessimism in Corporate India is overdone.
This deal, along with the DHFL deal, should give relief to a lot of debt issues and should remove the mistrust of passing on of lower cost of money to the end user, which – in turn – can spur lending and consumption demand.

Prashanth Tapse, AVP Research at Mehta Equities

At CMP Rs 361 with 10 percent premium sale, it is below market expectations of Rs 420-440 levels. But, at one point, it is a positive move in this market scenario. Promoter has been satisfying the stakeholder confidence with his promise and the commitment to repay.

Market will respect but not have a bumper movement tomorrow. It is a strong step in the overall divestment process, giving the promoters the required fillip to initiate the repayment process.

Mutual funds have the biggest exposure to Essel Group at Rs 7,570 crore, the largest being of Aditya Birla Sun Life Mutual Fund, followed by HDFC Mutual Fund, Franklin Templeton Mutual Fund.

HDFC AMC will be in action.

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