The Untold Story of Zee Entertainment Insolvency
The recent news about Zee Entertainment Enterprises Limited (ZEEL) filing for insolvency shocked many investors and stakeholders in the entertainment industry. The media company has been a dominant player in India’s entertainment sector for over two decades, with a market capitalization of over $5 billion. How did a company of this stature fall into insolvency? Let’s delve into the untold story of ZEEL insolvency.
The Beginning of ZEEL’s Troubles
ZEEL’s financial troubles can be traced back to 2019 when its parent company, Essel Group, faced a severe debt crisis. Essel Group, which had diversified interests in various industries, had accumulated a debt of around $2.4 billion. To reduce the debt burden, Essel Group’s promoters, led by Subhash Chandra, sold their stake in ZEEL to institutional investors. The sale was intended to raise $2.3 billion, which would be used to pay off Essel Group’s debt. However, the sale could not reach its target due to market conditions, and Essel Group’s debt problem aggravated.
The Impact of COVID-19 on ZEEL’s Finances
The COVID-19 pandemic further exacerbated ZEEL’s financial troubles. The nationwide lockdown, which lasted for several months, led to a significant decline in advertising revenues, which is the primary source of revenue for ZEEL. The company’s financial position deteriorated further, leading to a downgrade of its credit ratings by various rating agencies. To improve its liquidity position, ZEEL raised around $600 million through a rights issue in July 2020. However, it was still not enough to stave off its insolvency.
The Role of Invesco Oppenheimer in ZEEL’s Insolvency
Invesco Oppenheimer, an institutional investor, owns around 18% of ZEEL’s shares. The investor had expressed concerns about ZEEL’s corporate governance practices and demanded a change in the company’s board of directors. In November 2020, Invesco Oppenheimer called for an extraordinary general meeting (EGM) to replace four of ZEEL’s directors with its nominees. However, ZEEL’s board of directors opposed the move, stating that it was not in the best interests of the company.
In December 2020, Invesco Oppenheimer petitioned the National Company Law Tribunal (NCLT) for the removal of ZEEL’s directors. The NCLT admitted the petition, and a hearing was scheduled for January 2021. In response, ZEEL also filed a plea with the NCLT to prevent Invesco Oppenheimer from seeking the removal of its directors.
The Current State of ZEEL’s Insolvency
In February 2021, ZEEL’s board of directors approved a resolution to allow the company to file for insolvency. The move was a result of the failure to reach an agreement with Invesco Oppenheimer and the inability to find a suitable investor who could infuse capital into the company. ZEEL owes around $2.7 billion to its creditors, including Invesco Oppenheimer and other institutional investors.
The NCLT has appointed a resolution professional to oversee ZEEL’s insolvency proceedings. The resolution professional will invite bids from potential investors who are willing to acquire ZEEL’s assets and run the company as a going concern.
Key Takeaways
The ZEEL insolvency story highlights the importance of sound financial management and governance practices. A company’s financial position can quickly deteriorate due to external factors beyond its control, such as the COVID-19 pandemic. However, a strong corporate governance framework can help a company navigate through tough times and emerge stronger. Furthermore, institutional investors, such as Invesco Oppenheimer, play a crucial role in holding companies accountable for their actions and ensuring that minority shareholders’ rights are protected.
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