ZEE CRASH – MORE THAN WHAT MEETS THE EYE?

about 5 months ago
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The big newsmaker on Friday was the Zee group. Zee Entertainment Ltd (ZEEL), Dish TV and Essel Propack were beaten down to pulp, wiping off around Rs.14,000 crore of investor wealth.

On Friday, ZEEL fell over 26%, Zee Media by 9%, Zee Learn by 18.5%, Dish TV by 33% and Essel Propack by 16%. In fact for ZEEL, it was the worst day for the stock for a single day fall since 1999. And today, the very same ZEEL is the top gainer, bouncing back with all the vigor.

The Zee group stock price had crashed on account of a report in www.wire.in, which alleged that the Zee group was into money laundering, immediately after demonetization.

The report claimed that the SFIO (Serious Fraud Investigation Office) was probing a company, Nityank Infrapower, for deposits of over Rs.3,000 crore made just after demonetization. It alleged that the same firm, Nityank Infra and its shell firms carried out financial transactions that involved a few companies associated with the Zee group between 2015 and 2017. The report said that Nityank played a crucial role in large business deals between Videocon and Essel groups in Nov’16.

With recent corporate governance issues like the one uncovered recently in Sun Pharma and ICICI Bank once again hogging the limelight for all the wrong reasons; not to mention the huge crisis which IL&FS has unleashed, even the slight sight of something coming out from under the carpet, the market, stung too many times, just scoots to prevent any more singeing.

The Zee group issued a clarification yesterday afternoon stating, “At the outset we wish to reiterate and confirm that Zee Entertainment Enterprises Ltd" has no connection whatsoever with any alleged transaction(s) contained the article published by a website.

It also stated that the Essel Group had already confirmed that Nityank lnfrapower and Multiventures Ltd, is an independent company and does not belong to Essel Group. More importantly, the company stated that the lenders have agreed to not put the group under the ‘defaulter’ list, which is the main reason why the stock prices bounced back today.

Though, the company did confirm that the SFIO did seek Information / documents relating to certain transactions in July/August 2018 from certain Essel Group entities and requisite Information / documents were provided. The Zee group is of the opinion that since all information sought by SFIO had been provided by Essel Group entities and no further information was been subsequently sought, as per the group, the matter stands closed for Essel Group entities.

The report in The Wire does say that though Essel maintains that Nityank is an independent firm, Videocon alleges otherwise. The report suggests that Nityank is maybe more involved with Essel.

Subhash Chandra, on 24th, a day before this mayhem, said that he had had a successful meet with his lenders and potential suitors to sell 50% of the promoter Essel Group’s 42% in ZEEL. This stake sale was essential to bring down debt and also expand its global reach, to beat competition from Netflix. But after this news broke on 25th, the stock prices crashed, shaking the confidence of the potential buyers and investors alike.

This whole thing has raised a stink, with Subhash Chandra alleging in an open letter that there was a “negative force”, which was acting against the company’s interests, saying anonymous letters were written to regulators whenever the company announced good results. So was this a market operator, pushing the stock price down deliberately because the timing of this report was impeccable? This news of Essel group’s links to money laundering is not new as Videocon had alleged the very same thing earlier, saying that the group was into money laundering post demonetization.

Or is it that its tightly leveraged balance sheet is causing concern with the group having a total debt of around Rs.11,000 crore. Promoters stake is pledged to the hilt in all companies except Essel Propack.

Being caught in the middle of a storm is not new for the Zee group. Call it Subhash Chandra’s business acumen or his connections in highly placed political offices; this too shall pass, like always.

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