Subhash Chandra’s Essel Group will repay about Rs 2,600 crore to mutual funds this week out of Rs 4,200 crore it raised by selling 11 percent in Zee Entertainment to global fund Invesco Oppenheimer. Those fund houses from which the Essel promoters borrowed with Zee shares as collateral will receive this tranche of the payment said a person familiar with the matter.
Nonbanking finance companies will get Rs 1,100 crore out of the stake sale proceeds. Essel needs to repay mutual funds another Rs 3,700 crore before September 30, failing which the latter could sell the shares in the open market to recover money.
About six fund houses have an exposure of nearly Rs 6,300 crore with shares of Essel Group entities such as Zee, Dish TV and Essel Infrastructure as collateral.
Essel’s cash-strapped promoters had entered into an agreement with mutual funds getting time till September 30 to repay debt. This agreement prevented mutual funds from selling shares of group entities that were held as collateral. The agreement also affected payouts in the fixed maturity plans (FMPs) of Kotak Mahindra AMC and HDFC AMC.
Investors in six fixed maturity plans (FMPs) of Kotak AMC maturing between April 8 and May 31 did not get back their entire money on account of delay in repayment by Essel. HDFC Mutual Fund gave unitholders the option to roll over investments for another 380 days instead of redeeming at maturity in mid-April.
Aditya Birla MF has the highest exposure worth Rs 2,500 crore. Others that hold Essel securities are HDFC Mutual, SBI Mutual, ICICI Prudential, Kotak and Franklin Templeton. The Essel group had agreed to seal the stake sale deal before July 31 and return the proceeds by September. “Details cannot be shared due to confidentiality,” said an Essel Group spokesperson.
“Essel repayment would be a major sentiment booster for the entire mutual fund industry which was struggling after loss of confidence following a few defaults,” said the chief investment officer of a leading mutual fund. “There was uncertainty over the payments to AMCs even after the stake sale in Zee Entertainment.”
Mutual fund officials said it would be critical for Essel Group to repay the rest before September 30. In July, the group had unofficially told mutual funds holding the pledged shares that it could offload a further 10% in Zee to another investor in August to repay the balance of what it owes them. At Monday’s closing price of Rs 348, a stake sale of 10% in Zee would fetch about Rs 3,400 crore.
Earlier, HDFC Mutual Fund had bought non-convertible debentures (NCDs) of Essel Group worth Rs 500 crore from the debt schemes having exposure to these securities. The fund house had said it would repay investors in fixed maturity plans (FMPs), which hold Essel securities and will mature till September.