‘Z’ says no direct bearing of SEBI order on Rs 3,143.5 crore fund-raise, will take needed steps to complete exercise

Zee Entertainment Enterprises Ltd (‘Z’)—the country’s leading content and technology powerhouse—said on Sunday it believes that its fund-raising exercise will not be directly impacted by market regulator SEBI’s order barring two of its promoters. The company is seeking legal advice on the order and will take all required steps to successfully complete the fund-raising exercise, aimed at strengthening its financial foundation, said a spokesperson.

The SEBI order has no direct bearing on the fund-raising exercise, the spokesperson added.

The statement comes two days after shareholders approved the company’s Rs 3,143.5 crore preferential warrant issue and ESOP proposals at the extraordinary general meeting (EGM) held on July 31.

Just hours after the shareholder approval, market regulator SEBI issued an order barring promoters Dr Subhash Chandra and Punit Goenka over alleged unauthorised pledge of the company’s Hyderabad land to secure certain promoter-linked loans.

“The Company is in receipt of the order issued by the Securities and Exchange Board of India (SEBI) and is seeking advice from legal experts on the same,” the ZEEL spokesperson said.

“The Company firmly believes that the order from SEBI has no direct bearing on the fund-raising exercise.”

‘Z’ also said that pursuant to regulatory approvals received from the stock exchanges and shareholders at the EGM, it will take all required steps to complete the fund-raising exercise.

The development triggered a legal debate over whether the SEBI order could affect the company’s proposed capital raising, with most experts being of the view that the fund raise may not necessarily be derailed.

ZEEL fund raise approval and SEBI ban: What is the matter?

At the recent EGM, ‘Z’ shareholders approved the issue of 24,94,85,563 fully convertible warrants to a promoter group entity on a preferential basis at Rs 126 per warrant.

The proposed transaction is likely to bring in around Rs 3,143.5 crore into the company and eventually take the total promoter shareholding to 23.79 per cent.

The shareholders also approved the ‘Truly Yours’ Employee Stock Option Plan (ESOP), involving 3,74,22,835 stock options for eligible employees and employees of subsidiary companies.

SEBI’s order against two promoters came shortly after the shareholder approvals.

What do legal experts say?

Securities lawyer Chirag Shah said the timing of the SEBI order and ZEEL’s shareholder approval was unusual, but also emphasised that “all the requirements under company law have already been met”.

He noted that shareholders had already approved the fund raise overwhelmingly and so ZEEL should approach SEBI for a positive view, highlighting the company’s growth requirements.

“In my view, the company should be approaching SEBI” with the point that the resolutions approved at the EGM had already been shared with stock exchanges as required under LODR, Shah said.

He said SEBI would take cognisance of the approvals and could possibly provide “some kind of forbearance” to allow the fund raise to proceed.

Shah expressed confidence that SAT could consider the matter if immediate relief is required.

Pavan Kumar Vijay, founder of Corporate Professionals, said the SEBI order does not automatically end the capital-raising process, though stock exchange approval could pose a hurdle.