India’s leading proxy advisory firms have asked Zee Entertainment shareholders to vote against the company’s proposal to allot 16.9 crore warrants to promoters for Rs 2,237 crore, citing what they say are “multiple red flags”.
The governance advisers have opposed ceding greater control to chief executive officer (CEO) Punit Goenka, which, they say, will be at the cost of public shareholders who will see a significant dilution of their stakes, Moneycontrol has learnt.
The proposed allotment would increase the shareholding of Goenka and his family to 18.39 percent from 3.99 percent. The company disclosed the plan in a stock exchange filing on June 16 and shareholders will vote on this special resolution from July 6 to July 9.
Last year, shareholders defeated a resolution to appoint Goenka as the managing director. The company currently doesn’t have any major capital requirements, proxy advisory firms have said, adding it had cash and equivalents worth Rs 2,240 crore as of March 31, 2025.
No confidence in Goenka
The allotment would also give Goenka greater control of the company, though he is no longer a director in the company. The allotment will strengthen his position while diluting the stake of public shareholders, the governance firms said.
“Given the excessive dilution from the proposed warrants issue and the recent challenges faced by Zee, the above increase in promoter holding through the issue of warrants may not be in the best interest of the minority shareholders. We recommend shareholders vote AGAINST the resolution,” proxy advisory firm Ingovern said in a report dated June 23.
Another governance firm, IIAS, too, shared the same view. “Under his (Punit Goenka’s) leadership, the company has experienced a failed merger, regulatory scrutiny — including SEBI interim orders citing concerns over fund diversion (among others) — and erosion of shareholder value,” IIAS said in a report the same day. “Despite this, the board has continued to back Punit Goenka, enabling him to remain in charge despite not holding a board position. The board is now allowing Punit Goenka and the promoter group to be further entrenched in the company by consenting to the family/promoter group increasing its stake,” it added.
Moneycontrol has reviewed copies of both reports.
In 2023, the Securities and Exchange Board of India(Sebi) issued an interim order against Zee founder Subhash Chandra and his son and then managing director Goenka, finding them prima facie guilty of fund diversion. The Securities Appellant Tribunal (SAT) stayed the order and a probe is on after which the regulator is expected to issue a final order.
Promoters are subscribing to the warrants via offshore entities Sunbright Mauritius Investments Ltd and Altilis Technologies Pvt Ltd. These warrants are being issued at Rs 132 apiece.
Of the total consideration, 25 percent, or about Rs 574 crore, would be paid upfront by the promoter and the remaining is payable post 18 months when the warrants come up for conversion into shares.
The company would use the first tranche of proceeds (25 percent payable now) to build new businesses, including building an app for short content, educational content for children and live content business. After the conversion of warrants to shares, the company will receive the remaining 75 percent of funds, which will be used to explore merger and acquisition(M&A) opportunities, Zee has said.
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