Proxy advisors ask shareholders to block Zee promoters’ stake hike attempt

New Delhi: All three of India’s leading proxy advisory firms – Stakeholders Empowerment Services (SES), InGovern, and Institutional Investor Advisory Services (IiAS) – have united in a rare and emphatic call for public shareholders of Zee Entertainment Enterprises Ltd (ZEEL) to vote against the company’s contentious plan to issue preferential warrants worth Rs 2,237 crore to its promoter entities.

The proposal, which is scheduled for a shareholder vote at Zee’s Extraordinary General Meeting on July 10, would allow the promoter group led by Subhash Chandra to increase its stake from just 3.99% to 18.39%, potentially giving it far greater influence over the media company’s future at a time when public and institutional investors now hold more than 96% of Zee’s shares.

Also read: Explained: All you need to know about the Chandra family’s big Zee stake move

The board of Zee cleared the preferential issue on June 18, proposing to allot up to 16.95 crore fully convertible warrants to two promoter entities at Rs 132 each, with a 25% upfront payment required and the rest payable at the time of conversion, which can take place any time in the next 18 months.

If fully exercised, this would mark a dramatic return of promoter influence in a company where public shareholders have repeatedly outvoted management on critical resolutions, especially since the collapse of Zee’s merger talks with Sony.

Proxy advisors have raised strong objections on several counts.

First, they point to Zee’s robust liquidity position, with Rs 2,410 crore in cash and investments as of March 31, 2025, and argue that the company has failed to present any convincing rationale for further fundraising, especially when it would result in an estimated 15% dilution of non-promoter shareholders. 

IiAS explicitly states that such a substantial dilution cannot be justified in the absence of a pressing capital requirement, and that Zee has not presented any project-wise plan, return-on-investment metrics, or detailed disclosure of how the funds would be used to benefit the company and its shareholders.

Pricing of the warrants has also come under fire. Proxy advisors highlight that the issue price is determined by SEBI’s formula based on historical average market prices, while the warrants may be converted over an extended 18-month window. 

If Zee’s stock price rises in that period, promoters would acquire shares at a significant discount to the prevailing market price, ultimately enriching themselves at the expense of minority shareholders. 

SES further questions why Zee did not consider alternative fundraising options such as a qualified institutional placement or a rights issue, both of which would have been more equitable and transparent, giving all shareholders an opportunity to participate and preserving investor confidence.

Corporate governance at Zee is another area of major concern. In the past three years, the company has seen over 15 directors leave its board amid repeated governance crises. 

Punit Goenka, son of founder Subhash Chandra and the face of Zee’s top management, failed to secure shareholder approval to continue as director but remains CEO, a situation proxy advisors cite as symptomatic of the board’s failure to uphold shareholder interests and proper oversight. 

Both SES and IiAS have also urged shareholders to vote against ratifying the appointments of directors Saurav Adhikari and Divya Karani, citing procedural lapses and the persistent pattern of a “revolving door” at Zee’s board, which they argue reflects deeper instability and weak governance standards.

In a nutshell:

• Proxy firms say Zee doesn’t need the money. The company has Rs 2,410 crore in cash and treasury, enough for current needs.
  

• The warrants give promoters a future discount. Priced at Rs 132, these can be converted to shares over 18 months. If the stock rises, promoters profit; current shareholders lose value.
  

• No clear plan for the funds. Proxy advisors note the company hasn’t explained exactly how the money will be used, or why alternatives like a rights issue weren’t considered.
  

• Governance under question. Over 15 directors have left Zee’s board in three years, including founder Punit Goenka, who remains CEO despite losing a director vote. Proxy advisors also recommend voting against ratifying directors Saurav Adhikari and Divya Karani, citing poor board oversight.

Zee’s management, for its part, maintains that the preferential issue is a carefully considered strategic move, guided by recommendations from investment bank JP Morgan, and that bringing in additional funds from promoters signals long-term commitment and ensures alignment between company leadership and business growth plans. 

The company says the capital is intended for investment in technology, content creation, new digital business lines, including micro-dramas, user-generated content, edutainment, live events, and emerging sports. 

Zee is also exploring new partnerships and acquisitions to rebuild after the failed Sony merger, and claims the promoter group’s increased stake will ensure stable leadership through the next phase of growth and transformation.

The fate of the proposal, however, rests squarely with Zee’s institutional and public shareholders, including large mutual funds and international investors such as HDFC Mutual Fund, ICICI Prudential, LIC, and Norway’s Government Pension Fund Global. 

Given the promoters’ low 3.99% holding, the warrant issue can only be approved if 75% of votes cast are in favour. 

Most institutional investors tend to follow proxy advisor recommendations, so the united front presented by SES, InGovern, and IiAS is widely expected to influence the outcome decisively.

If the proposal is blocked, Zee’s promoters will remain sidelined from majority control, and the company will face renewed demands for more transparent governance and shareholder engagement. 

If it is passed, the promoter group regains significant influence, but Zee may continue to face investor scrutiny over its corporate governance and capital allocation decisions.

This rare show of unity from all three major proxy advisory firms underscores how Zee’s battle is being seen as a watershed moment for minority shareholder rights and corporate governance standards in India’s media and entertainment industry. 

The outcome of the July 10 vote is likely to set a precedent for how Indian capital markets handle similar situations in promoter-driven companies in the future.