Zee Ent slumps after SEBI cracks down on Chandra, Goenka

Zee Entertainment shares slump as SEBI bars chairman Subhash Chandra and CEO Punit Goenka from holding key positions, casting doubts on the Zee-Sony merger.

Zee Entertainment, one of India’s leading media and entertainment company faced a significant setback as its shares plunged after the market regulator Securities and Exchange Board of India (SEBI) took action against chairman Subhash Chandra and CEO Punit Goenka. The regulatory body barred them from holding any key managerial positions following an investigation that revealed their alleged involvement in siphoning off funds.

Zee Entertainment shares opened 4 percent lower on Tuesday. At 9:30 am, the stock was at Rs 186.35 on the National Stock Exchange (NSE), down 4.36 percent from the previous close.

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SEBI’s investigation uncovered instances where Chandra and Goenka, as directors and key management personnel, allegedly abused their positions by diverting funds for the benefit of associate entities owned and controlled by them. The order described the siphoning off of funds as a well-planned scheme, involving the use of multiple entities within a short period.

Furthermore, SEBI stated that Zee Entertainment lacked adequate processes and structures to prevent poor governance practices. The flagship company was accused of being used as a “piggybank” by Chandra and Goenka. The investigation pointed out the significant drop in Zee Entertainment’s share price, from Rs 600 to Rs 200 over the period from FY19 to FY23, despite the company’s profitability. It also highlighted the decline in promoter shareholding from 41.62 percent to the current level of 3.99 percent.

These developments have raised concerns regarding the fate of the proposed merger between Zee Entertainment and Sony Pictures Networks India. The National Company Law Tribunal (NCLT) had previously asked the Bombay Stock Exchange (BSE) and the NSE to reconsider the merger in light of the Shirpur Gold Refinery fund diversion case. However, the National Company Law Appellate Tribunal (NCLAT) set aside the NCLT order. The next hearing in NCLT is scheduled for June 16.

As per the scheme of arrangement, Punit Goenka is expected to become the Managing Director and CEO of the merged entity. However, SEBI’s order poses a significant roadblock to the merger. Analysts suggest that there are two potential outcomes of the SEBI order: first, that it delays the merger process as Goenka and Chandra appeal against the SEBI order, and second, that Sony evaluates the situation and weighs the positive business implications against the raised governance concerns related to Zee Entertainment’s promoters.

Hetal Dalal of Institutional Investor Advisory Services (IIAS) commented, “We will have to wait and watch.” The Zee-Sony merger, initially expected to be completed by the first half of the current fiscal year ending March 31, 2024, has encountered multiple obstacles. Previously, Zee Entertainment faced challenges due to payment delays to operational and financial creditors. Now, with the SEBI order, the merger faces yet another significant hurdle.

Investors and industry observers will closely monitor the developments surrounding Zee Entertainment and the future of its merger with Sony Pictures Networks India as the company navigates through these challenging times.