CONTROVERSY-SUBHASH CHANDRA & THE ESSEL GROUP.

 

The media is crying hoarse about Subhash Chandras approved payment of Rs 6.5 crores as a personal guarantor and the cut is much too high. What is the fact? For this first we have to check the liabilities of the Essel Group Creditor wise and who voted for what. Let us examine those figures below.

Who voted in favour of the repayment plan?

1.       World Crest Advisors                                      28.49%                  6273.27

2.       Lemonade Capital Advisors LLP                    16.85%                  3709.11

3.       Catalyst Trusteeship                                        11.85%                  2607.78

4.       Corpcall Capital Advisors LLP                       10.30%                  2266.68

5.       Veena Investments (P) Ltd.                               4.99%                  1097.33

6.       Indiabulls Housing Fin. Ltd                              1.98%                    435.73

7.       Direct Media Dist. Ven. Pvt. Ltd                       1.15%                    253.07

8.       Kautilya Traders Pvt. Ltd.                                 1.02%                    224.46

9.       Anil Kumar                                                        0.67%                    147.34

10.   Sunil Jain                                                            0.18%                      39.62

TOTAL                                     77.48%               17054.39

Who voted against the repayment plan?

1.       LIC Housing Finance                                          6.09%                  1340.60

2.       IDBI Trusteeship Services(Franklin Tem)          3.36%                    739.26

3.       HDFC Bank                                                         3.17%                    698.91

4.       Axis Bank                                                            2.86%                   629.79

5.       Canara Bank                                                        1.60%                   352.10

6.       UBI (UK) Ltd.                                         0.76%                   167.35

7.       RBL Bank                                                0.55%                   121.07

TOTAL                                      18.42%                 4048.08

 

Who abstained from voting?

 

1.       IDBI Trusteeship (Edelweiss)                       2.60%                   572.17

2.       Indusind Bank                                                1.11%                  244.20                                                  

3.       Axis Trustee Services (Client-1)                    0.18%                    39.61

4.       Axis Trustee Services (Client-2)                    0.11%                    24.21

5.       Axis Trusteeship Services (Client-3)              0.04%                      8.80

6.       Catalyst Trusteeship (HDFC Ass.Mgt. Co)    0.06%                    13.20

TOTAL                                                           4.10%                   902.19

 

Debt Represented Rs 22006.57 crores.

 

The Principal borrowers remain separately liable to pay Rs 1494 crores. Adding this to Subhash Chandras Rs 6 crores, the total amount payable would be Rs 1500 crores. So even after considering that the cut would be 93% of the loan amount.

 

To claim that Subhash Chandra only has Rs 6.5 crores of personal assets is nonsense. As a personal guarantor he is fully liable to pay the entire debt himself in case of default by the borrowing companies, of course provided he has the assets. He keeps on claiming that is not his personal borrowing, but that does not matter at all as to whose borrowing it is. As per Section 128 of the Indian Contract Act, the liability of the guarantor is coextensive with that of the borrower. As he has given a personal guarantee he is fully liable for the entire irrespective of whether it is his personal borrowing or not. As the Chairman of the Essel group, he would  be squarely liable for the debt to the extent of his share in the group.   

 

There are 4 companies in the Essel group along with Promoters stake in % currently. They are

 

1.       Zee Entertainment Enterprise Ltd.           3.99%  current value  Rs 360 crores

2.       Zee Media Corporation Ltd.                      4.34%  current value Rs    22 crores 

3.       Dish TV                                                        4.04% current value  Rs    20 crores

4.       Siti Networks                                               6.10% current value  Rs      1.5 crores 

 

Of course the stake was much higher earlier but a large portion of the Promoters equity was either sold or invoked by lenders and transferred to institutional and foreign entities to clear group liabilities.

 

So the total value of the Promoters shareholding currently in all the Essel group together is only Rs 400 crores as per the above calculation. And all these shares should now be pledged to Financial Institutions so there would not be any value left in them for Chandra.

 

Now what exactly is the current Net Worth of Subhash Chandra? In 2017-2018 Chandra’s Net Worth was estimated at around Rs 40,000 to 45,000 crores. Chandra claims that it is blown up only because of the Essel Group share prices. That may well be so because the share price of Zee Tele reached Rs 600 in Jan 2018 compared to only Rs 93 now. So it dropped by some 6.5 times. But even after dropping that much it has a market cap of Rs 9000 crores.

 

Zee media another smaller company of the Essel group peaked at Rs 47 in Jan 2018 compared to only Rs 9 now.  That suffered an erosion of about 5 times. After dropping its current market cap is Rs 560 crores.

 

Dish TV share reached a peak of Rs 23.5 in Feb 2018, but it is now drastically down to Rs 2.75 and has a market cap of Rs 500 crores.   

 

Siti Networks shares flopped miserably and could only top at Rs 34 in Jan 2018. It is now hammered to only Rs 0.29. Current market cap Rs 25 crores.

 

The institutions now say they have a debt of Rs 22,000 crores. The market value of the Essel group at its peak was only about Rs 50,000 crores in 2018. How could the institutions be so imprudent to loan Rs 22,000 crores with such market cap? Where is the margin of safety?

 

In 2016 when he became a Rajya Sabha member Chandras affidavit stated his net worth as Rs 39.07 crores. The current Net Worth of Chandra is Rs 31.79 crores of which Rs 25 crores comes from a residential property.

 

Has Chandra diverted money when his share was flying high? Only a Forensic audit report can reveal that.  But in his current position Chandra is finished and cannot fund much more than what he promised.