Stakeholders Empowerment Services (SES) — one of the three proxy advisory firms which had asked Zee Entertainment shareholders to block the promoter stake hike plan at the July 10 extraordinary general meeting (EGM) — has now reversed its stance.
SES on Friday said it now supports Zee Entertainment’s proposal to issue fully convertible warrants to promoter group entities. It cited promoters’ willingness to price the warrants at a premium and improved market perception for changing its recommendation from “against” to “for”.
The other two proxy advisory firms — InGovern and Institutional Investor Advisory Services (IiAS) — have maintained their opposition to the preferential allotment plan.
The proposal, if cleared by shareholders, will allow Zee promoters to hike their stake from 3.99% to 18.39%, giving them far greater influence over the company’s future, experts said.
SES’ change in stance comes a day after Zee founder Subhash Chandra clarified in a call to analysts that the promoters were neither pledging shares nor taking loans to fund the capital infusion. Instead, the promoters were tapping recoveries from creditors to build its war chest for the Rs 2,237-crore fund infusion. While 25% of the amount will be paid upfront, the balance 75% will be staggered over 18 months, Zee said on June 16, when it had notified the stock exchanges about the plan following two board meets that day.
Chandra said on Thursday that the promoters may not wait for the 18-month cycle to bring in all the money for the fund infusion. They may do so earlier as the competitive market demanded long-term commitment from them, he added. Zee has said that it is targeting higher margins and viewership share as well as aiming for a growth between 8% and 10% in ad revenue this financial year. It was also looking to reach break-even in its digital business Zee5 in the ongoing financial year and unlock value via the music and syndication business.
SES had earlier objected to Zee’s use of market regulator SEBI’s ICDR (Issue of Capital and Disclosure Requirements) formula — typically applied to equity issuances — to price the warrants at Rs 132, marginally above the Rs 128.58 floor price, rather than using models like Black-Scholes, which it views as more appropriate for derivative instruments.
In its updated stance, SES said the company’s willingness to price the warrants at a premium to both the ICDR price and the undisturbed trading price signalled promoter confidence and improved market perception.