INSUBCONTINENT EXCLUSIVE:
By Andy MukherjeeThe opportunity to own the largest broadcaster in a consumer market of 1.3 billion people doesn’t arrive all that often;
even more rarely does it come after a single-day 26 per cent rout in the stock.
The special situation has arisen because of Indian
infrastructure financier-operator ILFS Group’s sudden $12.8 billion bankruptcy
Analysts who believed the tremors would reach other shadow-banking entities like Dewan Housing Finance Ltd were half right
Yes, Dewan’s loan disbursements fell 95 per cent from a year earlier in the December quarter amid pressure on the mortgage lender to
But the shock waves have now spilled beyond finance to reach the glamorous world of television content.
Subhash Chandra, the founder who
controls 41 per cent of Zee Entertainment Enterprises, is putting half his shares on the block after making wrong-way leveraged bets in
unrelated industries such as infrastructure, a mistake the tycoon acknowledged in an open letter on Friday evening
Although the stake-sale plan has been known for a while, the official explanation so far was that Zee wanted a partner to become a “global
It’s clear now that the real reason is the debt load of Chandra’s Essel Group
BloombergQuint estimates the burden at Rs 17,000 crore ($2.4 billion) across 87 operating companies as of March 31, 2017
The collapse of ILFS found a mention in Chandra’s mea culpa
The implosion of the highly rated lender raised financing costs for everyone who had borrowed short-term funds to invest in long-term assets
such as roads, power stations, waste-management plants, or in the case of drugmaker Sun Pharmaceutical Industries’ billionaire founder
Dilip Shanghvi, apartment complexes and windmills
The collateral for these forays in most instances was shares of their successful, publicly traded operating companies.
But as both Shanghvi
and Chandra recently found out, collateral can wear thin very quickly
All it takes is a whistleblower complaint of financial irregularities or a news article insinuating links with a company allegedly dealing
in unaccounted-for cash to make the stock price plunge
Strenuous denials or defamation lawsuits can’t quite set things right with creditors left edgy by ILFS’ defaults, though a weekend
meeting with lenders does seem to have bought Chandra time to conclude the sale of his crown jewel.
Zee, where I worked briefly in the
1990s, is a content powerhouse with a 20 per cent share of India’s traditional television viewing market
The network also boasts of 35 per cent Ebitda margins despite heavy investment in Zee5, a fast-growing digital app
There’s no confirmed bidder yet, but according to a report in the TheIndianSubcontinent, Zee may be of interest to Amazon, Apple, Tencent
Holdings, ATT, Singapore Telecommunications, Comcast Corp and Sony Pictures Entertainment.
If that weren’t already a long list, Reliance
Jio Infocomm, a telecom operator controlled by Mukesh Ambani, India’s richest man, is also likely to join the contest, the article said
If Ambani snags the asset, his triple play of carriage, content and commerce could deal a blow to Amazon boss Jeff Bezos’s
multibillion-dollar plan to dominate e-tailing in India
Demand for digital video in India is exploding as Ambani drives down data prices
With an enterprise value of $4.8 billion, and more cash than debt, Zee has a good chance to take on 21st Century Fox’s local-streaming
platform, HotStar, as well as Netflix and Amazon.com’s Prime
But a quick deal is critical
Lenders have agreed to a standstill
While that helped the stock recover from Friday’s carnage, lenders’ patience will have a limit
General elections will be held soon; and the opposition Congress party, which has started fancying its chances in the polls, is no fan of
Zee Media Corp’s news operations
(Chandra became a member of Parliament with the support of the ruling party in 2016.)
Media isn’t the only asset in play
The TV mogul has also put a chunk of his road portfolio on the block, though with the beleaguered ILFS also looking to offload its transport
investments, buyers are spoiled for choice
It’ll be easier to deleverage by selling Zee than by disposing of a bunch of highways
If the pressure to come up with liquidity forces Chandra to cede control of his TV empire, then the new owner will have the deadbeat
infrastructure financier ILFS to thank.
