Zee gets a shot in the arm as one of 3 proxy firms backs promoters’ stake hike

New Delhi: One of the three proxy advisors who had warned shareholders against Zee promoters’ attempt to raise their stake, Stakeholders Empowerment Services (SES), on Friday reversed its stance and stated that it now supports Zee Entertainment’s proposal to issue fully convertible warrants to promoter group entities.

Ahead of the July 10 EGM, SES, which had earlier advised voting against the resolution over governance and pricing concerns, changed its recommendation from ‘Against’ to ‘For’ after reviewing the company’s clarification on Thursday and the market response.

The other two proxy firms, InGovern and Institutional Investor Advisory Services (IiAS), have so far maintained their opposition to the preferential allotment plan.

The Zee proposal seeks shareholder approval for issuing warrants worth Rs 2,237 crore to the Subhash Chandra-led promoter group, which would increase its stake from 3.99% to 18.39% in a company where over 96% of shares are currently held by public and institutional investors.

SES had objected to Zee’s use of SEBI’s ICDR formula—typically applied to equity issuances—to price the warrants at Rs 132, marginally above the Rs 128.58 floor price, rather than using models like Black-Scholes, which it views as more appropriate for derivative instruments. At the time of the proposal on May 1, Zee’s stock was trading at Rs 106, having recently rebounded from a 52-week low of Rs 90.

In its updated stance, SES said the company’s willingness to price the warrants at a premium to both the ICDR price and the undisturbed trading price signalled promoter confidence and improved market perception. Zee’s stock rose nearly 35% following the announcement, a move SES attributed to investor optimism triggered by the proposed capital infusion.

SES noted that while the pricing premium was modest compared to the ICDR value, using the undisturbed price of Rs 106 as a benchmark made the Rs 132 issue price effectively about 24% higher. This, the firm said, addressed its primary concerns about fairness and governance, leading to the revision in its recommendation.

Zee has stated that the upfront payment of 25% per warrant (Rs 33) will provide immediate liquidity for operations and strategic initiatives. The remaining amount will be paid over an 18-month period, during which promoters bear market risk. The company argues this structure aligns promoter interests with long-term shareholder value.

Despite the reversal, SES maintained its critical view of Zee’s governance track record. The report cites setbacks including the failed merger with Sony, regulatory action against promoters, legal disputes, and termination of broadcasting contracts, all of which have strained investor trust.

SES acknowledged that, in this context, promoter-led capital infusion could offer some stability. “Any disturbance to the company’s operations may cause irreparable loss to investors,” it stated, warning that rejection of the proposal could reverse the recent uptrend in share price.

Zee’s EGM will be conducted via video conferencing on July 10 at 11:00 AM. Remote e-voting is open from July 6 to 9 via the NSDL platform, with July 3 set as the cut-off date. The warrant issuance is the sole item on the agenda.