Is Zee Ent really insolvent? 2 options in hand for firm to stall insolvency proceedings
1 min read . Updated: 23 Feb 2023, 03:03 PM IST
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Shares of media company Zee Entertainment Enterprises Ltd (Zee) sunk to a 17-month low on Thursday after the company was admitted into insolvency proceedings. The Mumbai Bench of the National Company Law Tribunal (NCLT) on Wednesday admitted an insolvency petition Zee Entertainment Enterprises filed by its financial creditor IndusInd Bank, under Section 7 of the Insolvency and Bankruptcy Code (IBC).
What happened?
Siti Networks (sister concern of ZEEL) had taken a loan from IndusInd bank wherein ZEEL stood as a guarantor. Since Siti Networks was unable to pay, IndusInd bank invoked the guarantee and made ZEE a party to it. Amount under consideration is Rs831mn. Apart from IndusInd bank, ZEE is said to have contingent claims from two more entities that are still under dispute.
Zee had informed the exchanges in December that IDBI Bank filed an application under insolvency proceedings against the company over a default for a loan availed by Siti.
Is Zee really insolvent? What is the recourse?
"ZEEL had a cash balance of ₹6,726 mn as of December 2022 and hence even if it is made liable to pay to all the outstanding claims, it will be left with a cash balance of ₹2,285 mn. ZEEL now has two options in hand: Pay the amount and settle the dispute, or appeal against the order," said Jinesh Joshi – Research Analyst, Prabhudas Lilladher Pvt Ltd.
Zee's shares have declined more than 22% in 2023 so far (YTD). The stock on Thursday tumbled as much as 17% before paring some losses towards the closing bell.
"After admission of insolvency proceedings by NCLT, the stock price has corrected by 10% (at the time of writing) as ongoing arbitration issue can delay the merger time-line with Sony Group. The next NCLT hearing is due on 09th March 2023 and unless ZEEL settles the dispute amicably or achieves a stay on the order, merger time-line can get delayed further," Joshi added.