In recent months, the mutual fund industry has been grappling with redemption pressure in the wake of debt crises at various entities, including the Essel Group. But with its subsidiary Zee Entertainment Enterprises Ltd (ZEEL) announcing a stake sale deal on Wednesday, fund houses with exposure to the beleaguered group may have cause for cheer.
The Group announced yesterday that Invesco Oppenheimer Developing Markets Fund has agreed to buy 11 per cent stake in ZEEL for Rs 4,224 crore. The proceeds from the ZEEL deal will be utilised to pay off the debt in the name of various Group companies. "Essel Group had initiated the process of divesting its key assets, with an aim to repay all the lenders by September 2019," the company said in a regulatory filing on Wednesday. In February, the Group had signed a standstill agreement with its lenders - including mutual funds and NBFCs - to not sell their respective stakes at firesale prices. The Subhash Chandra-controlled conglomerate was given time till September to deleverage or pare its debt pile of Rs 13,000 crore.
Of this, it is supposed to pay back Rs 7,000 crore to mutual fund investors next month. Among the fund houses with the highest exposure to the Essel Group are Aditya Birla Sun Life Mutual Fund, HDFC Mutual Fund, and Franklin Templeton Mutual Fund. The group comprises the listed ZEEL and Dish TV besides unlisted entities including Sprit Infrapower and Multiventures, Essel Lucknow Raebareli Toll Roads, Essel Infraprojects, ARM Infra and Utilities, Asian Satellite Broadcast and Edisons Infrapower besides others.
Out of the total Rs 7,570 crore exposure of asset management companies to the Essel Group, a Morningstar report released in April estimated that Rs 1,673 crore was held in fixed maturity plans. The Aditya Birla Sun Life AMC had the highest overall exposure to Essel Group firms at Rs 2,936 crore, including Rs 77 crore in FMPs (fixed maturity plans), while over 75 per cent of HDFC AMC's Rs 1,196 crore was parked in FMPs at Rs 902 crore, The Financial Express reported citing the investment research firm's data. The other biggies with three-digit FMP exposure included Reliance Nippon Life Asset Management at Rs 239 crore, which was more than half its total exposure to the group, and ICICI Prudential, with nearly 14 per cent of its Rs 866 crore exposure held in FMPs.
In fact, in April, when some FMP schemes of Kotak and HDFC mutual funds came up for maturity, HDFC AMC had rolled over one of its FMP by 380 days, while Kotak Mutual Fund repaid investors minus their holdings in Essel Group companies. Subsequently, in a bid to allay investor doubts that they might not get back their entire investments in case the Essel group defaulted on payments, HDFC AMC decided to provide a Rs 500 crore "liquidity arrangement" to certain FMP schemes of HDFC Mutual Fund with exposure to the Non-Convertible Debentures (NCDs) issued by Edisons Infrapower and Sprit Infrapower.
Ahead of the ZEEL stake sale, the promoters had already divested a few road and power projects. For instance, Essel Infrastructure, which has debts to the tune of Rs 11,400 crore, had sold three of its road projects in MP, Karnataka and Telangana for around Rs 3,500 crore. The Essel group is also known to have sold its power assets to Edelweiss for Rs 2,500 crore while PE giant Blackstone snapped up Essel Propack in a Rs 2,157 crore deal in April. The Group informed the bourses on Wednesday that it is also in "the process of divesting some of its non-media Assets" and is confident of completing the process of repayment "well within the agreed timeline".