Why have proxy firms asked investors to vote against Zee’s ₹2,237-cr fundraise?
Zee Entertainment Enterprises, one of India’s largest media conglomerates, is seeking to raise ₹2,237 crore by issuing fully-convertible warrants to its promoters. However, three proxy advisory firms have warned investors against voting in favor of this plan, citing concerns over excessive dilution, risk, and governance issues. In this blog post, we will delve into the reasons behind these warnings and the implications for Zee’s investors.
Zee’s proposed fundraise plan involves issuing warrants to its promoters, which can be converted into equity shares later. The company aims to utilize the funds raised to pay off debt, strengthen its balance sheet, and invest in growth initiatives. While the plan may seem attractive on the surface, the proxy advisory firms have raised several red flags that investors should be aware of.
Excessive dilution
One of the proxy advisory firms, InGovern Research Services, has warned investors that the proposed warrants will lead to excessive dilution of the company’s equity. InGovern’s report states that the warrants will result in a significant increase in the company’s outstanding shares, which could negatively impact the value of existing shares. This is particularly concerning given that Zee’s promoters already hold a significant portion of the company’s shares, which could further dilute the value of the shares held by minority investors.
Risk and uncertainty
Another proxy advisory firm, Institutional Investor Advisory Services (IiAS), has cautioned investors that the plan is “risky” and carries significant uncertainty. IiAS notes that Zee is already facing challenges in its business, including the ongoing dispute with the Indian Cellular Association (ICA) over the imposition of a 10% cess on cable and satellite TV channels, and the fallout from its failed deal with Sony Pictures Networks India. IiAS believes that the company’s financial performance is likely to be impacted by these challenges, and that the warrants may not provide the desired returns to investors.
Governance issues
The third proxy advisory firm, arm’s length of proxy advisory firms, has raised concerns over governance issues at Zee. The firm notes that the company’s board of directors has not provided adequate explanations for the need to issue warrants to promoters, and that the plan may not be in the best interests of all shareholders. The firm also points out that Zee’s promoters have a significant level of influence over the company’s operations and decision-making processes, which could lead to conflicts of interest and undermine the rights of minority investors.
Implications for investors
The warnings from proxy advisory firms have significant implications for Zee’s investors. If the warrants are approved, it could lead to a significant dilution of the company’s equity, which could negatively impact the value of existing shares. Additionally, the risk and uncertainty surrounding the company’s business and financial performance could lead to volatility in the company’s stock price and reduce investor returns.
Conclusion
Zee’s proposed fundraise plan has raised several red flags that investors should be aware of. The proxy advisory firms have warned against the plan citing concerns over excessive dilution, risk, and governance issues. While the plan may seem attractive on the surface, investors should carefully consider the potential implications and vote against the plan if they believe it is not in their best interests.
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