Zee Group Crisis Explained | Why Zee companies stocks are falling?
On 25the January 2019, ZEE Group experienced a fall of almost 30-35% in their stock prices. The stocks of Zee Entertainment and Dish TV saw major falls, and Essel Propack also saw some falls.
Zee Group has more that 100 subsidiaries. And this is always the problem with such groups. Their core business is running very smoothly and efficiently, but because of the hunger for extra growth such mistakes happen.
When one says ZEE, media and entertainment is first things that comes to mind. Majority of the people and investors don’t know that ZEE also has its investments in solar projects, power projects and such others. For this hunger of extra growth through diversification such groups do a lot of mistakes.
ZEE group has taken up a debt of almost Rs. 17,000 crores. And this debt is not on their core of media and entertainment but on other infrastructure business. The business of ZEE entertainment is running very nicely without any problems. And in this repayment of Rs. 17,000 crores ZEE group is facing problems.
How did the Group take on so much Debt?
Zee Entertainment Enterprise Limited (ZEEL)
- Stock Price & Market Cap
- In January 2018, the stock price of ZEEL was around Rs. 600 and the market cap was almost Rs. 60,000 crores.
- And today in January 2019, the stock of ZEEL is around Rs. 320 and the market cap has also come down to almost Rs. 30,000 crores. The stock has fallen by 50%.
- Promoter Holding
- The promoter holding in ZEEL is close to 41.62%. So, the promoter holding valuation is close to RS. 12,500 crores according to the current price. That is the promoter holding valuation in January 2018 was almost Rs. 25,000 crores.
- From this 41.62%, they pledged 60% of the holding to take up debts. And they took on this debt to manage their other businesses.
- So basically, they took on loans on their successfully running business to help run their other uncertain businesses.
Price & Market Cap
- In January 2018, the stock price of Dish TV was around Rs. 84 and the market cap was almost Rs. 16,000 crores.
- And today in January 2019, the stock of ZEEL is around Rs. 22 and the market cap has also come down to almost Rs. 4,000 crores.
- The promoter holding in ZEEL is close to 68%. So, the promoter holing valuation is close to RS. 2,720 crores according to the current price. That is the promoter holding valuation in January 2018 was almost Rs. 25,000 crores.
- From this 68%, they pledged 82% of the holding to take up debts. That is, they have pledged almost Rs. 2,200 crores.
- Another smoothly functioning company from where they have taken on loan which they are not able to service and have put burden on Dish TV.
So, this how they took on so much debt by pledging their smoothly functioning business and to try to manage other unsuccessful businesses. Those business are even making losses for the group.
Letter from the Promoter
Mr. Subhash Chandra has a written letter to all the creditors like banks, NBFCs, Mutual funds, etc. In the letter it is mentioned that company is not able to repay the loans in short term as the business is not going as per plan and there is a liquidity crunch. In this letter, it has been accepted that mistakes have been made and also have made wrongs bids for some projects like buying of Videocon D2H
He has also said the there is nothing wrong with the companies (ZEEL, Dish TV, Essel Propack) of the group. The problems that have arrived are because of the call taken and the decisions made by the promoters.
ZEE Group is in talks with foreign companies such as Sony to sell their holding in ZEEL and Dish TV to create liquidity. The liquidity thus created will be used to decrease the debt portion on them. They will try to bring the debt under control.
The creditors, who have lent money to the group, are okay with the current situation of ZEE as the group has promised them that they will find solutions within the next 6 months. They have also promised that no default will happen from their side.
This is a very positive sign for the Group and its companies.
- There is nothing wrong with their operating companies. They have very rich cash flows.
- What will happen in the future and the how the things will take turns will only be understood after ZEE Group makes some statements about this and what future action plans they will take on.