Two proxy advisers split on Zee promoter warrant issue ahead of EGM

Mumbai: Two proxy advisory firms have issued contrasting recommendations to shareholders of Zee Entertainment Enterprises Ltd (ZEEL) ahead of the company's extraordinary general meeting (EGM) on July 31, with InGovern urging investors to reject the proposed Rs 3,143.5-crore preferential issue of warrants to a promoter group entity, while Stakeholders Empowerment Services (SES) has recommended voting in favour of all three resolutions.

The company is seeking shareholder approval to issue up to 24.95 crore fully convertible warrants to promoter group entity Sunbright Mauritius Investments Ltd at Rs 126 per warrant. If fully converted, the issue will increase the promoter group's shareholding to 23.79 per cent from 3.99 per cent, resulting in a 20.61 per cent dilution of existing shareholders.

InGovern has recommended that shareholders vote against the warrant issue, arguing that while the issue price is above the SEBI-prescribed floor price and prevailing market price, the structure gives the promoter "embedded optionality" by requiring only 25 per cent of the consideration to be paid upfront, with the balance payable within 18 months upon conversion. It said this allows the promoter to lock in a future acquisition price while initially committing limited capital.


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The proxy adviser also questioned the company's decision to opt for a promoter-linked preferential allotment instead of alternatives such as a rights issue, qualified institutional placement (QIP) or internal accruals. It said the company had not adequately disclosed the promoter's funding arrangements for paying the remaining Rs 2,358 crore at the time of conversion, despite the promoter group's earlier reduction in shareholding following invocation of pledged shares.

InGovern further cited governance concerns, saying the explanatory statement does not clearly demonstrate an independent review of the proposal by the audit committee or a committee of independent directors, nor explain why alternative fundraising routes were not pursued. It also pointed to continuing regulatory scrutiny, including two SEBI show-cause notices, saying the governance overhang remains unresolved.

The advisory firm noted that shareholders had rejected a similar promoter warrant proposal last year, with the resolution receiving only 59.5 per cent support against the 75 per cent approval required for a special resolution.

However, InGovern recommended shareholders vote in favour of Zee's proposed "Truly Yours" employee stock option plan (ESOP) and its extension to employees of subsidiary companies, noting that the potential dilution of about 3.9 per cent is within acceptable limits and that the plan excludes promoters while incorporating a four-year vesting schedule.

Responding to InGovern's observations, Zee said the 25:75 payment structure is prescribed under SEBI's ICDR Regulations for preferential warrants and is not unique to the company.

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The company said the upfront payment of about Rs 786 crore represents a significant promoter commitment and would be forfeited if the warrants are not converted within 18 months. It added that the proceeds would fund investments in sports rights, digital initiatives, AI-led content, micro-drama, animation and potential acquisitions, while existing cash reserves are earmarked for operations, working capital, FCCB repayments and contingency requirements.

In contrast, SES recommended shareholders vote in favour of all three resolutions, saying the proposed warrant issue complies with applicable regulations and that the company has made adequate disclosures regarding the transaction and the proposed utilisation of funds.

The proxy adviser noted that the issue price of Rs 126 per warrant is above the SEBI floor price of Rs 112.64 and said the proposal does not raise any major governance concerns. It also backed the proposed ESOP plan and its extension to subsidiary employees, stating that both resolutions raise no governance concerns.

The contrasting recommendations set the stage for a closely watched shareholder vote on July 31, as Zee once again seeks investor approval for a promoter capital infusion after a similar proposal failed to secure the required majority last year.