Brickwork Ratings (BWR) India Pvt Ltd has downgraded the credit rating of Zee Entertainment Enterprises Ltd’s (ZEEL) 6 per cent Cumulative Redeemable Non-Convertible Preference Shares aggregating ₹1210.16 crore from ‘AAA’ to ‘AA+”.

The credit rating agency also downgraded ZEEL’s issuer rating from ‘AAA’ to ‘AA+”.

In its rating rationale, BWR said that the downgrade factors in the deteriorating financial flexibility of the group marked by increased pledge of promoter holding to the level of 96 per cent, continuous volatility in share price movement of ZEEL resulting in substantial decline in market capitalisation, and promoter group’s inability to repay full debt against pledge of ZEEL shares as per committed time lines.

The agency said that Russia’s VTB Capital, acting on behalf of certain lenders, disclosed that it has secured rights of 102 million shares (about 10.7 per cent stake) in ZEEL held by Essel Media Ventures, a promoter group company, against a loan agreement entered into during September 2017.

In case promoters fail to resolve the issue of debt at the promoter group level, it may lead to invocation/sale of pledged shares by the lenders, it said.

BWR observed that all these issues will substantially bring down promoters’ holding, resulting in uncertainties about ownership and management control. According to the agency, the aforementioned ratings continue to be on “Credit Watch with Negative Implications” on account of overhang of debt at promoter group levels and stretched pledge position of the group holdings in ZEEL and resultant uncertainties.

Strength of Zee brand

The agency noted that the ratings, however, continue to factor in established track record of the promoters in Indian television broadcasting industry and presence in media and entertainment industry for more than two decades.

The rating factors in presence of brand Zee in the Indian media space and large array of channels, investment in programming through launch of new channels as well as increase in original programming hours on existing channels, and expansion in international markets and alternate platforms such as Digital TV.

The ratings also takes note of satisfactory financial profile as reflected in increase in scale of operations, low debt and adequate cash and cash equivalents, the agency said

comment COMMENT NOW