Zee admitted to insolvency, stock falls most in two years on merger delay concerns

As per foreign brokerage UBS, Zee has two options to deal with these developments: File an appeal with NCLAT to set aside the order or pay the amounts in interest of completing the merger

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Insolvency proceedings against Zee Entertainment won’t derail its merger with Sony Pictures Networks India, but would certainly delay the process, according to analysts.

The Zee stock opened 4 percent lower on February 23 and then extended the losses. It was quoting at Rs 178.60 on the NSE at 10am, down over 13 percent. This was the worst intraday fall for Zee since 12 April, 2021. The stock has seen few good days over the past six months, declining more than 23 percent.

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On February 22, the Mumbai bench of the National Company Law Tribunal allowed to initiate insolvency proceedings against Zee Entertainment Enterprises Ltd. The order came on a petition filed by IndusInd Bank.

Zee was the guarantor for IndusInd Bank’s Rs 150-crore loan to Essel Group’s Siti Networks, however it failed to honour the Debt Service Reserve Account Guarantee Agreement (DSRA). The shortfall amounts to Rs 83 crore.

“Apart from this, there is also an ongoing case with IPRS (music body for royalty), wherein there is a demand of pending royalty to the tune of Rs 150 crore over last three years,” said Karan Tauran of Elara Capital.

As per foreign brokerage UBS, Zee has two options to deal with these developments: File an appeal with NCLAT to set aside the order, or pay the amount in interest of completing the merger. “The amount is not material. It has already been provided for in Zee’s books and potential settlement will not affect the P&L,” UBS said.

According to Taurani, complications in the above pending liabilities will delay merger by another 2-3 months at least. “The stock remains at bottom valuations and progress on the merger front can only drive re-rating,” he said.

In the third quarter, the media company reported a 92 percent year-on-year decline in consolidated profit at Rs 24.31 crore, dented by weak operating performance, lower topline and exceptional loss (Rs 168.97 crore).

Consolidated revenue from operations at Rs 2,111.2 crore fell by 0.07 percent compared to year-ago period hit by lower advertisement revenue, down 15.6 percent on-year.

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