Merger-bound Zee Entertainment’s share price tanked 14.44% after the company the National Company Law Tribunal (NCLT) on Wednesday admitted an insolvency petition filed against the company. This move has likely put the merger on standstill.
The media major’s share price reached a 52-week low of 176.55 apiece on Thursday’s early trades. Its shares were trading at ₹ 187.60 apiece, down 9.09% at 11:56 AM on Thursday.
The Mumbai bench of the NCLT on February 22, 2023, allowed initiating of insolvency proceedings against Zee Entertainment Enterprises Ltd (ZEE), on a petition filed by IndusInd Bank.
ZEE was the guarantor for IndusInd Bank’s ₹ 150 crore loan to Essel Group’s Siti Networks. However, it failed to honour the Debt Service Reserve Account Guarantee Agreement (DSRA), by a shortfall of ₹ 83 crores.
According to the Insolvency & Bankruptcy Code, 2016 (IBC), once a company is admitted to insolvency, moratorium kicks in barring any transfer of assets. Therefore, the insolvency proceedings have likely delayed ZEE’s merger with Culver Max Entertainment (Sony). According to market experts, a merger will not be possible until ZEE’s promoters settle the dues with the lender.
Sony and ZEE had announced that they would merge their television channels, film assets and streaming platforms, after which IndusInd Bank approached the NCLT, seeking payment of default. Moreover, lenders like Axis Bank, IDBI Bank as well as IndusInd Bank are in opposition to its merger with Sony and have filed a petition with the NCLT.
“We will continue to take all the required measures to achieve a timely completion of the same, guided by legal advice, in the interest of our stakeholders, who have recognized the value and potential of the merger,” said Punit Goenka, CEO, Zee Entertainment, indicating that the company is committed to 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,” said global brokerage UBS. It added that ZEE has two options left. It can file an appeal to set aside the insolvency plea or pay the amount due in order to complete the merger.
Zee Entertainment is a mid-cap stock with a market capitalization of ₹ 19820 crores. It has a low return on equity of 9.21%, but an ideal debt-to-equity ratio of 0.03. Further, it has a dividend yield of 1.45%.
Written by Simran Bafna
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