Warrants worth ₹2,237 Cr: Why proxy advisors are saying ‘No’ to Zee’s promoter deal

India’s top proxy advisory firms are raising a red flag over Zee Entertainment's latest move to allot a hefty 16.9 crore warrants—worth ₹2,237 crore—to its promoters, warning shareholders that the proposal could severely dilute their stakes and tilt power further in CEO Punit Goenka’s favor.

The proposed issue, if approved, would shoot up the promoter group’s shareholding from a modest 3.99% to a commanding 18.39%. This increase in control comes at a time when Goenka isn’t even a board member, having lost a shareholder vote last year that would have reinstated him as managing director.

Governance experts say this move is not only unnecessary, given Zee’s strong cash position—₹2,240 crore in reserves as of March 31—but also risky, considering the company’s recent track record. The resolution will be up for shareholder voting from July 6 to July 9.

“This deal is all downside for minority shareholders,” warned proxy firm Ingovern in a June 23 report. “It involves excessive dilution and lacks strategic justification. We recommend voting AGAINST it.”

Institutional Investor Advisory Services (IIAS) echoed similar concerns. “Under Punit Goenka’s leadership, the company has faced a failed merger, regulatory probes, and substantial erosion in shareholder value,” IIAS stated. “Despite all this, the board continues to back him—even now, when he holds no board position.”

Both reports, reviewed by Moneycontrol, criticize the board’s decision to back the warrant issue, suggesting it paves the way for Goenka and the promoter group to consolidate control, regardless of prior regulatory scrutiny or market performance.

Zee’s woes have been mounting since 2023 when the Securities and Exchange Board of India (SEBI) issued an interim order against founder Subhash Chandra and Goenka over alleged fund diversion. While the Securities Appellate Tribunal has stayed the order, the investigation continues, and a final SEBI ruling is awaited.

The warrants, priced at ₹132 each, are being subscribed through offshore entities—Sunbright Mauritius Investments Ltd and Altilis Technologies Pvt Ltd. Promoters will initially pay 25% (₹574 crore) and the rest after 18 months when the warrants are converted into equity.

Zee claims the funds will be used in phases: the upfront amount to develop a short video app, kids’ educational content, and a live content platform; the later tranche, post conversion, will fund potential mergers and acquisitions.

But for now, the biggest battle is not for the market—but for control. And with shareholder trust shaken, the coming vote may well decide who really calls the shots at Zee.