Two closely held firms controlled by Essel promoters have not submitted the customary ‘no-default certificate’ to the rating agency, Acuité, which tracks the debt while the private sector lender is silent on whether the borrowing companies have missed servicing loans.
Besides raising funds through sale of stock-backed debt securities to mutual funds, some of the Essel Group companies have drawn loans from Yes Bank on the back of comfort letters or guarantees from promoters.
Responding to ET’s queries, an Essel Group spokesman said: “Essel Business Excellence and Essel Corporate Resources Pvt Ltd have availed borrowings from Yes Bank and the said accounts were ‘standard’ as on 31/03/2019 and continue to be ‘standard’ as on date.”
When contacted, a Yes Bank spokesman declined to comment on the matter.
A loan account, according to banking parlance, remains ‘standard’ till it gets the tag of non-performing asset (NPA), which happens only if there is non-payment of dues within 90 days from the due date.
(Thus, hypothetically, any borrower which fails to pay loan interest on March 31can technically remain ‘standard’ in the bank’s book till end-June). The Essel official did not elaborate on why ‘no-default certificate’ from the borrowing firms were pending.
Industry sources said Acuité could not obtain the information from Yes, the lending bank. There is no compulsion, however, on the part of Yes (or, any lender) to disclose information to rating agencies — a state of affairs that agencies complain have placed them as well as investors at a disadvantage.
Unlike a default on debenture or bond, which investors come to know immediately, only banks and the Reserve Bank of India are privy to information on delay in loan servicing. A ‘standstill agreement’ between Essel and some of the fund houses (which have subscribed to Essel group’s rated debentures) is under force. However, unlike mutual funds, banks, which have to follow strict prudential guidelines laid down by RBI, are not free to strike such deals with borrowers. In fact, Sebi, after its initial silence on the agreement, has recently questioned the pact which was entered into soon after shares of Subhash Chandra-led Essel Group companies Zee and Dish TV plunged in late January.
Bank term loan facilities of Rs 495 crore to Essel Corporate Resources as well as Rs 400 crore to Essel Business Excellence are under ‘rating watch’. “A non-submission of no-default certificate is a trigger for the rating agency but it does not necessarily mean that the security is in for downgrade.
Agencies, typically, approach lending banks in trying to find out if there is any default. But, there is no regulation that compels banks to share such information to anyone other than RBI. But if there is a downgrade on loans, ratings of Essel debentures could come for examination,” said a senior official at a bond house.
Ratings of the two companies were placed on ‘watch’ after Essel promoters announced their intentions to dilute holding in Zee Entertainment Enterprises, the group flagship. The agency perceives that the financial flexibility of the promoters of Essel Group emanates from their holdings in their listed companies, mainly ZEE Ltd.