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What triggered the crash of Zee group companies' shares on January 25?

Zee Entertainment Enterprises shares plunged 33 percent intraday on January 25 to hit the 44-month low of Rs 288.95.

January 28, 2019 / 04:04 PM IST
Subhash Chandra | Former chairman of Essel Group | Money lost: $3.4 billion | Net worth as of December 2019: $660 million (Image: Reuters)

Subhash Chandra | Former chairman of Essel Group | Money lost: $3.4 billion | Net worth as of December 2019: $660 million (Image: Reuters)

 
 
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Essel Group companies have been in the news for the past week for all the wrong reasons, due to which their stocks and market capitalisation have taken a hit. So what went wrong?

The debacle began on January 24, when The Wire reported that the Essel Group carried out transactions with companies that are under the scanner for suspected deposits during demonetisation.

The media report claimed Nityank, formerly known as Dreamline, had directly or indirectly transacted with shell companies for an amount of Rs 5,000 crore, and these include listed and huge corporate entities.

After this report was released, the shares of the Essel group companies tanked. Zee Entertainment lost nearly 26 percent on January 25, Zee Learn lost 18.49 percent and Zee Media Corp lost 9.05 percent. Meanwhile, Dish TV lost 32.74 percent and Essel Propack's shares plunged 16.08 percent.

The company, however, told investors in a conference call "it has nothing to do with the news reported by the Wire" and that it initiated legal action against The Wire Media Group.

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A Zee spokesperson said the transactions referred to in media reports, "regarding the involvement of Essel Group companies", had been "undertaken with due approvals and compliance of applicable laws and regulations and through proper banking channels. The said investigation or the mentioned transactions do not have any bearing or connection with any of the operating entities of Essel Group".

The share price plunged amid a report that lenders had sold the promoters' pledged shares.

"At promoter level, there was a continuous increase of pledged shares that was 41.93 percent of promoter holding in December 2016 to 59.37 percent of promoter holding in December 2018 resulting in 24.71 percent of total shareholding as pledged. This was mainly taken to fund other promoter group companies that are a heavy investment and low cash generating," Sameer Kalra, President of Target Investing, said.

Another set of news that was in the public domain regarding Zee Entertainment was that the promoters were in talks with three companies, including Sony Pictures, to sell half of their stake. Chandra reportedly had extensive meetings and discussions on the proposed stake sale in the UK and the US.

Chandra issued an apology to the group's lenders, non-banking finance companies and mutual funds after the company's shares tanked on January 25. He claimed 'negative forces' were trying to sabotage the Zee Entertainment stake sale, while also admitting he had committed some mistakes. Chandra did not address the Nityank issue in his statement.

The Essel Group promoters held a meeting with lenders after which it assured investors there will be a speedy resolution process.

"I am pleased to share that we have achieved an understanding with lenders. We have always valued their immense trust and faith sown in us and the positive and progressive outcome of the meeting is a true example of the same. I am very positive that we will continue to take such positive steps in rising up from the current challenging times, with the support of all stakeholders," Chandra said.
Moneycontrol News
first published: Jan 28, 2019 02:54 pm
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