Zee gets SAT nod to proceed with ₹3,143-cr preferential warrant issue

Zee Entertainment Enterprises Ltd (Zee) has secured major relief from the Securities Appellate Tribunal (SAT), which has allowed the company to proceed with its proposed ₹3,143-crore preferential issue of fully convertible warrants to a promoter-group entity.

The tribunal has also given ZEE an additional week to complete the issuance, providing relief to the company’s fundraising plans that had been affected by a two-month restriction on accessing the securities market. “Appellant company and Goenka are permitted to complete the issuance of fully convertible warrants to the promoter group entity on a preferential basis, subject to deposit of full penalty within one week by both the applicants,” the SAT bench said in its order.

Why did SAT allow Zee to proceed with the fundraise?

The Securities and Exchange Board of India (SEBI) had opposed the preferential issue, arguing that allowing Zee to raise funds while the company was barred from accessing the securities market would dilute the effect of the regulatory action.

SAT, however, questioned the rationale for withholding the fundraise during the two-month restriction when Zee would be able to complete the transaction immediately after the restriction ended. The tribunal has extended the deadline for completing the preferential issuance by one week. The earlier 14-day window was scheduled to expire on Friday, August 14.

Who will receive the preferential warrants?

The warrants will be issued to Sunbright Mauritius Investments, a promoter-group company.

Zee had approached SAT seeking permission to proceed with the ₹3,143-crore preferential warrant issue and an extension of the 14-day period for completing the transaction, citing the time that had already elapsed since shareholders approved the resolution.

What action had SEBI taken against Zee and its promoters?

In an order dated July 31, SEBI barred Goenka from accessing the securities market for 12 months while Zee was restrained from accessing the market for two months.

SEBI also imposed a ₹58 lakh penalty on Goenka and ₹30 lakh on ZEEL. Promoter Subhash Chandra was separately barred from the securities market for 12 months and fined ₹60 lakh.

SAT also permitted Zee to undertake transactions involving mutual fund units for its day-to-day requirements in the ordinary course of business. The tribunal clarified that these transactions cannot be undertaken for other purposes, including making payments towards the proposed dividend.

The regulatory action relates to the use of one of Zee’s land assets in Hyderabad as security for loans taken by four Essel Group entities. The four entities had obtained separate loans totalling ₹726 crore from Indiabulls Housing Finance Ltd, with the Zee asset being used as security for the borrowings.