18 hours ago
Zee promoters' road to higher stake goes through LIC, mutual funds
Mumbai: Domestic institutions, including mutual funds and Life Insurance Corporation of India (LIC), hold the key to allowing Subhash Chandra-led promoter entities to increase their stake in Zee Entertainment Enterprises Ltd. That's when Norges Bank, the company's largest overseas investor, has given its assent.
LIC (4.49%), HDFC Mutual Fund (3.66%) and ICICI Prudential Mutual Fund (3.04%) together own over a tenth of the outstanding shares of Zee as of 31 March, making their decision crucial. HDFC Life Insurance (1.57%) is another significant shareholder.
Zee has intensified its outreach to canvass for support and convey the company's view on the warrants issue that will allow promoter entities to raise stake, said an industry executive in the know.
The company seeks to issue warrants to two promoter entities: Sunbright Mauritius Investments Ltd and Altilis Technologies Pvt. Ltd. Upon conversion of the warrants to equity, the aggregate promoter stake in Zee will increase to 18.39% from the existing 3.99%.
Improving odds
A change in stance from proxy governance firm Stakeholder Empowerment Services (SES), which had earlier asked shareholders to reject the resolution, has improved the odds for the Zee promoters. SES said on Friday that it has reversed its stance based on clarifications given by the company. The firm said the resolution was legally sound and its objection was only on governance grounds.
California-based proxy advisor Glass Lewis has also given its affirmation to the transaction.
However, two other domestic proxy advisors—Institutional Investor Advisory Services (IiAS) and InGovern—remain opposed to the transaction.
LIC, which subscribes to SES and IiAS, remains undecided on its voting decision, the executive cited above said, speaking on the condition of anonymity. LIC's voting will be crucial as many domestic institutions, including insurers and mutual funds, take a cue from the country's largest institutional investor.
Foreign investors divided
Some larger foreign investors have already cast their votes. Norges Bank, which manages the sovereign pension fund of Norway, gave its assent to the transaction, along with California Public Employees' Retirement System (CalPERS).
The aye vote of Norges, which has nearly ₹2 trillion of assets under management, is the most significant endorsement from an overseas investor as it holds a 3.86% stake in Zee.
Calvert Research and Management, part of Morgan Stanley Research, and the City of New York Group Trust, which has over ₹200 billion in assets under management, have rejected the resolution to increase the promoters' stake.
'The proposed allottees are companies belonging to the promoter group that are under Sebi's investigation on financial dealings and governance practices," Calvert wrote justifying its voting decision. 'There are concerns on the transparency and accountability of the promoters."
On 18 June, the media company's board approved raising ₹2,237 crore from two promoter entities through the issuance of convertible warrants at ₹132 each. Each warrant, when exercised over the coming 18 months, will be converted to one equity share. A quarter of the sum is to be paid upfront in cash, while the remainder is to be paid at the time of conversion.
The deadline for investors to cast their vote is 10 July, and the resolution needs at least 75% of the votes cast to be in its favour to pass.
'The issuance of preferential warrants to the promoter group entities has been approved by the Board, post a thorough assessment of the Company's growth plans by the reputed investment bank—JP Morgan," a spokesperson for Zee said over an email.
The investment bank had assessed the company's growth plans and also studied the capital market's feedback before submitting its assessment to the board, the spokesperson said. The board, after a careful evaluation of the alternatives and JPMorgan's assessment, decided to approve the issue of fully convertible warrants to promoter group entities, purely to enhance the company's financial foundation, the spokesperson said.
Last year, when the company had sought shareholder approval for raising ₹2,000 crore, HDFC Mutual Fund and Aditya Birla Sun Life Mutual Fund, which own 1.12% of the company, had rejected it. Still, the resolution was approved, with nearly 79% of shareholders giving their approval.
However, in November last year, investors had rejected an extension for Punit Goenka, son of founder Chandra, as the managing director, but the resolution later became infructuous as Goenka stepped down as the managing direstor. He continues as the chief executive officer of Zee.
Zee shares closed 1.49% lower at ₹145 apiece on the BSE on Monday even as the benchmark Sensex ended flat.
