Is it the Zee Crises?

The mutual fund industry has barely recovered from the industry shaking IL&FS crises and now it might have to take big blow again as the media industry giant Zee entertainment enterprises fell on its market value with a huge margin.

On Friday 25th Jan 2019: breaking its two-session winning run, shares of Zee Entertainment cracked 30.92 percent to Rs 229.70 on the NSE on Friday, logging its worst-ever fall. Its subsidiary company Dish TV also had a similar fate and observed a fall of around 34 percent in its share.


So, what made a giant industry leader skipping its heat beats?

The reason why Zee had such a massive fall, is a report from the wire news agency which claims that a link has emerged between the Essel group which the parent company of Zee entertainment and another company named ‘Dream Line Manpower solutions’ being probed by the SFIO(serious Fraud investigation office) for suspect demonetization deposits. Though the case hasn’t been confirmed and has been traded as a conjecture by the media, it has affected the market at a large-scale.


How Does it affect the Mutual Fund Industry?

The mutual fund industry is bracing for fresh trouble with its exposure to Zee Group shares. It also has exposure of about ₹7,275 crore of the company’s debt papers.

Among these holdings, the major holding is with Aditya Birla’s Mutual Fund, HDFC Mutual Fund and Franklin Templeton Mutual Funds.

Aditya Birla MF’s debt exposure in the form of loans against Zee Group shares was to the tune of about ₹2,700 crore while those of HDFC Mutual Fund and Franklin Templeton were about ₹1,200 crore and ₹1,000 crore respectively.

SBI Mutual Fund and Baroda Pioneer Mutual Fund had investments of ₹506 crore and ₹500 crore, respectively. Reliance Mutual and Kotak Mutual Fund had exposures of ₹430 crore and ₹134 crore while that of DHFL Pramerica was ₹55 crore.

Though these fund houses’ exposure to Zee Group may seem small against their fund sizes, conservative MF investors are concerned about the future ability of the MF firms to protect their investments, with the possibility of successive writedowns after the IL&FS fiasco.


What should be your plan of action, if you are holding any of the above funds?
The first thing you should be doing is to be patient. Don’t just panic and go on the selling spree. Hold your investments as there are factors resisting this whole crunch.

Things You can relax about:

Unlike IL&FS there isn’t any default made by the company, it is just a conjecture of mala fide transaction which isn’t even proved yet.
Though the share of the company had a huge fall, it is still being traded strongly and in large quantity and is gaining its stronghold.
The silver lining for debt fund investors is the new rule that allows side pocketing of distressed assets. It is an accounting method that separates illiquid bonds from quality investments in a debt portfolio. If the Zee group bonds crash, open-ended debt funds may cushion themselves by putting them aside in a separate side portfolio. The fund’s NAV then reflects the value of the liquid assets, with a separate NAV assigned to the side pocket assets based on their estimated value.
Lenders and creditors have agreed to give a 3-month window to the promoters to sell off their stakes and repay the debts. So, if there is any default the promoters shall sell off to make a pro-rata payment.
Dr. Subash Chandra (promoter and chairman of Essel group )- The man is one of the leading entrepreneur and industrialist he has a strong career of 52 years to back his worthiness.