Artistes body drags Zee to insolvency court, could merger with Sony get delayed?

While IPRS is an operational creditor, Zee’s financial creditors like IndusInd Bank, Axis Bank and IDBI Bank have also dragged the company to the National Company Law Tribunal

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Troubles keep haunting broadcaster Zee. In a fresh development, Indian Performing Right Society Limited – the representative body of music owners and composers that collects royalty on behalf of artistes – has filed an insolvency petition against Zee Entertainment Enterprises Limited for non-payment of dues.

It has claimed debt and default of Rs 211 crore towards royalty payable for utilization of “literary and musical works.”

Following the disputes, the share price of Zee opened lower on January 3. At 9:30 am, the stock was trading at Rs 240.55 on the NSE, down by 1.4 percent. The stock has declined over 25 percent in the last one year.

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In FY22, IPRS had received Rs 313 crore as license fee, up 85 percent year-on-year. It paid royalties worth Rs 264.81 crore to its members in FY22, higher by 38 percent YoY.

Meanwhile, Zee has informed exchanges that IPRS’ claim is not in line with the interpretation of the law on the point of payment of royalties for “literary and musical works”. Thus, the company will file its reply rejecting the claim.

“Our checks indicate that the above amount of Rs 211 crore is the total royalty outlay pending from Zee’s side for over four years. All other broadcasters except Zee have been paying their royalties timely,” Karan Taurani, senior vice president at Elara Capital said.

Second blow within a month

While IPRS is an operational creditor, Zee’s financial creditors like IndusInd Bank, Axis Bank and IDBI Bank have also dragged the company to the NCLT at different points of time.

IDBI Bank is claiming a default of Rs 149 crore, the broadcaster informed exchanges on December 14. The claim arises under a debt service reserve agreement between the bank and the company for the financial facility availed by Siti Networks Limited.

“The company is vehemently disputing the bank’s claim,” Zee said in the filing.

As per reports, the NCLT has chosen to hear petitions from ZEE’s financial lenders opposing the Zee-Sony merger on January 12.

Could the merger get delayed?

The company’s merger with Culver Max Entertainment (Sony) has already received approval from NCLT, CCI and shareholders.

“These insolvency pleas are unlikely to derail the merger timeline,” Shriram Subramanian, MD of InGovern Research Services, a corporate governance advisory firm, said.

“Globally, royalty disputes are common, and studios always bring up these sorts of contentious disputes as legal battles. If anything, one should wonder why such disputes are being raised at the last stage of the merger process,” he added.

Also Read: Zee Entertainment: Slow recovery dampens potential

Avinash Gorakshakar of ProfitMart Securities concurred. “We believe this case will not have any significant impact on the company’s operations in the long term and markets have also not discounted this fact negatively,” he said.

“The merger process may see some slowdown but we believe that all other regulatory approvals are in place for completion of merger in next 3 months,” he added.

Zee targets to complete the merger with Sony by end of this financial year, following which the stock will remain delisted for 5-6 weeks as per SEBI norms.

In Q2FY23, Zee Entertainment’s profit after tax declined 57 percent to Rs 112.9 crore versus Rs 266.1 crore in the corresponding period a year ago. Revenue inched up 2.5 percent to Rs 2028 crore.

As of September end, the company had cash and treasury investments of Rs 900 crore. After merger with Sony, the combined entity will have a total cash balance of $1.5 billion or Rs 11,615 crore.