Business Standard

Plot thickens in Zee fund diversion case

STOCK FALLS 14% ON THE BACK OF SPECULATIO­N ON AMOUNT DIVERTED SEBI FINAL ORDER EXPECTED BY MID-APRIL

- KHUSHBOO TIWARI Mumbai, 21 February

The mystery surroundin­g the alleged fund diversion from Zee Entertainm­ent Enterprise­s (Zee) by founders Subhash Chandra and Punit Goenka has thickened with speculatio­ns of an amount multiple times higher than that cited by the ex-parte interim order passed by the Securities and Exchange Board of India (Sebi) dated June 12, 2023.

While Zee shares witnessed a fresh selloff on Wednesday, news reports of accounting fraud left investors guessing about the hole in the media broadcaste­r’s books. An order by the Securities Appellate Tribunal (SAT) in October 2023 had clearly hinted that Sebi’s investigat­ion had found a deeper rout.

The order quotes a submission made by the Sebi counsel, “…there are a large number of transactio­ns running into ~2,000 crore involving companies owned, controlled, or otherwise related to promoters.” The counsel had further argued to the tribunal that additional letters of comfort (Locs) issued by Goenka and his father had come into existence, including one to the tune of ~4,210 crore issued by Chandra in his capacity as chairman of Essel Group.

Shares of Zee tanked 14 per cent even as the media broadcaste­r termed the “rumours pertaining to accounting issues in the company are incorrect, baseless, and false”. Shares of Zee last closed at ~164.5, recording an erosion of ~2,700 crore in market capitalisa­tion. The stock is now down 40 per cent this year and has lost ~10,580 crore in market value.

Sebi’s interim order was triggered by an LOC of ~200 crore for appropriat­ing a fixed deposit with YES Bank. Sources said that Sebi has now investigat­ed several other Locs issued by the father-son duo.

Sources said Sebi is currently investigat­ing the Zee matter and is expected to pass a final order by mid-april.

News reports in Bloomberg and Reuters citing sources said during its investigat­ion Sebi has found fund diversion at Zee at around ~2,000 crore. The reports dashed the hopes of investors who had lapped up Zee’s shares in an earlier session on reports that Zee and Sony were making a last-ditch effort to salvage the $10 billion merger.

“In this regard, the company is not aware of any order wherein Sebi has recorded any finding and therefore it has been falsely reported,” said Zee in the exchange filing.

Sebi had issued an ex-parte interim order in June 2023. In a confirmato­ry order issued in August 2023, the regulator had said that it would take up to eight months to finish the probe. In the confirmato­ry order, Sebi noted that an internal examinatio­n of related party transactio­ns carried out by Grant Thornton India had a minimum value of ~23 crore, which left out the majority of the transactio­ns. These transactio­ns are under examinatio­n.

In October last year, SAT gave relief to Zee chief Goenka from the Sebi order barring him from holding key positions in four group firms.

“The company has been in the process of providing all the comments, informatio­n, or explanatio­n requested by Sebi and has extended complete cooperatio­n on all aspects,” Zee further said in its filing.

The Zee executive was given a personal hearing before the market regulator before the directions in the confirmato­ry order were firmed up.

The promoters of Zee have less than a 4 per cent stake in the company while 96 per cent of it is publicly owned.

According to the allegation­s, funds diverted from Zee and associate entities benefited the promoter family.

The planned merger with Sony’s India unit was also shrouded with uncertaint­y following Sebi’s action against the founders.

There were also difference­s between the two media behemoths on whether Goenka should be at the helm of the operations of the merged entity.

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