Black Friday for Essel Group: Rs 11,000 crores gone, Zee's Subhash Chandra blames evil forces

Last Updated: Sat, Jan 26, 2019 14:16 hrs
Subhash Chandra Zee

Stocks of Zee Entertainment Enterprises Ltd and scrips associated with Essel Group traded on the rough side. So rough, that stocks associated with Essel Group reportedly lost a market-capitalisation of Rs 11,000 crores. These stocks include Zee Entertainment Enterprises, Essel Propack, Zee Learn, Dish Tv India, and Zee Media Corporation.

The Black Friday for Zee Group commenced soon after a report in The Wire that said, the Serious Fraud Investigation (SFIO) office was probing a company- Nityank Infrapower, formerly Dreamline Manpower, for deposits of over Rs 3000 crores made post demonetisation. The report also reported that Nityank and a group of other shell firms were conducting financial transactions with firms associated with Essel Group between 2015 and 2017.

Soon the markets reacted. Shares of Zee Entertainment, listed on the Bombay Stock Exchange came crashing down by 26% to end the session on Friday at Rs 319.35 per share. This, was Zee Entertainment's biggest intraday loss. The stock's 52 week low was Rs 288.95 while its highest was Rs 619. Stocks of Zee Learn (down by 18.49%), Zee media corporation (down by 22.10%), Essel Propack (down by 16%) were also bleeding in what can be reported as Zee's Black Friday.

Soon, the exchange sought a clarification from Zee.

An official spokesperson said, "there is no information / announcement (including impending announcement) by the company which in our opinion needs to be reported / disclosed and which may have bearing on the price / volume behaviour in the company's scrip..."

In a letter marked to the exchanges, Zee's spokesperson admitted ignorance on The Wire's story. "The Company is unaware of the newsitem referred in your letter or its source or factual correctness of the information contained therein," reads the letter.

Dish TV in its clarification said, "In this regard, we - Dish TV India Ltd, would like to state that there is no information by the company, which in our opinion needs to be reported to the stock exchange and which may have bearing on the stock price of the company. Further we would also state that the company is not aware of the alleged transactions mentioned in the said news report."

However, Subhash Chandra, the chief promoter and MD blamed it upon a market forces. Chandra's theory seems likely considering the growth, Zee reported in its quarterly results for December. In its quarter earnings, Zee Entertainment said revenues rose 18% to Rs 2167 crores.

At one time, it felt as if the counters on Zee would turn bloody red, considering the stock bled by a margin of 30%. However, the prospects of getting more information via a call later in the day assured investors to remain invested.

Zee held an investor call sometime around 6:45 on Friday. During the call, the management emphasized that Zeel (Zee Entertainment) was not linked to shell companies linked with demonetisation [as in The Wire's news report]. Also, a promoter stake sale could materialize in the days to come. The company also revealed that it would collate data on its shares being pledged. Meanwhile, attendees to the call seemed concerned on the stock's exposure to mutual fund houses. According to unconfirmed reports, total mutual-fund exposure to Zee group and its entities was reported at Rs 7000 crores.

What initially started off for being linked with shell firms has now switched to tales of NPAs, and a promoter-led stake sale. Subhash Chandra seems to believe that accepting responsibility for the stock's slump and explaining on NPAs could help tide from Black Friday.

On Saturday, he penned an open letter in what seems like an attempt to clarify. A few traders were quick to pin-point on the credibility of this letter, considering it is unavailable on the filing section of the exchange. The letter arrives from the communications team of Zee.

Here is the letter in its true-form.

Open Letter from the Desk of Subhash Chandra, Chairman, Zee & Essel Group:

"Dear Friends,

At a very early stage of my life, I have learnt the most important lesson from my grandfather, Shri Jagannath Goenka, which taught me that a direct dialogue with the creditors should be maintained, should you find it difficult to repay any sort of loans, and this message is my earnest effort in doing so.

First and foremost, vide this message I would like to express my deepest apologies to our esteemed financial supporters. I have always been the first to accept my faults and we have been consistently accountable of the decisions taken, and I will maintain the same today as well. For the first time in my career of 52 years, I am compelled to apologize to our bankers, NBFCs & Mutual Funds, since I believe that I have not lived upto to their expectations, despite the best of my intentions.

I am extremely certain that there is no promoter in India Inc., who has dared to sell the jewel of his crown, to pay off the liabilities. While the process is still ongoing, there are some forces which are not willing to see us succeed.

That said, I am not indicating that there are no mistakes done from my end, and as always, I am willing to face the consequences of the same. I assure you, that I am not running away from the core issue and will do my best to repay each and every person. The best time for the same, however, is difficult to be mentioned at this stage. I would also like to state through this message, the key points which have gone wrong:

1.Essel Infra: As most of the infra companies, even we have made some incorrect bids. 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 to bleed 4000 Cr. to 5000 Cr. of Rupees. Despite the loss making projects, we continued to pay the interest and the principle, by borrowing funds against our shareholdings in Listed Companies.

2.Acquisition of D2H: My recommendation made to my brother Jawahar Goel to buy D2H from Videocon was one more key error, which costed me and Jawahar both, a fortune.

3.When our family business separation was implemented, as the eldest member of the family, I had taken the entire burden of the debts. I believe, it was my mistake to have told myself that “Subhash you can earn and repay the creditors”. Post which, most of my bets on the new businesses have not worked, which led to the increased debt, due to the added interest levels.

4.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.

5.From May / June 2018 onwards a negative force which was acting against our grip as promoters became strongly active. This was followed by some anonymous letters being sent to all Bankers, NBFCs, Mutual Funds, Shareholders, etc.

6.Whenever we have reported some really good results from the operating Companies, the share prices were intentionally hammered by these negative forces, driving away the investors.

While the above, are the reasons of the current situation, I must also mention what steps were taken from our end:

  • We wrote a number of complaints to the Department of Police, Home Minister of Maharashtra, SEBI and other concerned authorities, right since November 2018, but all the efforts did not result in any action.
  • Till December, we continued to pay the due interest and principle, to all lenders.
  • I have also given my best to expedite the stake sale of ZEE Entertainment. Infact, I have just returned back from London, last night itself, after a series of positive meetings with potential suitors.

The mentioned negative forces, possibly after getting a hint of these positive meetings, have attacked the share price today, with a clear intention of sabotaging ZEE Entertainment’s strategic sale process.

I must also mention that there is no systematic protection against the insidious attack on us by the mentioned negative forces, but we will continue to seek the support of the system in order to thoroughly investigate the matter.

About the Operating Companies:

  • All Operating Companies, especially our most precious one which is ZEE Entertainment, are performing exceptionally well and are under NO stress whatsoever. The debt burden is purely at the promoter level, which is reflecting negatively on the Companies.
  • I would like to reiterate that ALL the Companies are performing exceptionally well and there is no problem whatsoever.

Having said the above, I still believe, strongly feel and would like to urge the lenders, not to react in an anarchical manner and to maintain patience, till the process of ZEE Entertainment’s stake sale is completed. Post the sale process, we will be positively able to repay the entire dues, but if the lenders react in a panic situation, it will only hurt them and us.

I would again like to reiterate that I have no intention whatsoever, to keep a single rupee, till all the dues to the lenders are paid.

Yours truly,
Subhash Chandra"

Meanwhile, here are some discussions on Twitter: