 Good afternoon and welcome to the second episode. Today we talk about Zee or rather the Zee group or the SL group and All the drama that happened around Republic Day Now what happened around Republic Day on 25th January as everybody was getting ready to celebrate 26 Jan The stocks of Zee TV were hammered down. This happened on the 25th The share prices fell as much as 26 to 30 percent across the group and a big hit was Taken by the flagship company Zee Entertainment Enterprises. This is the crown jewel of the company Obviously this has implications across the board for a lot of people things weren't known then but what got known very fast was that mutual funds had held as much as 25 percent of Zee's equity that is when I say Zee now. I mean Zee entertainment the flagship company This was in the form of shares pledged by the promoter group The promoter has a 42 percent stake in the company and they had pledged 25 percent of these to four mutual funds and three finance companies. Should mutual funds be lending against stock? Absolutely not. They are meant to invest in listed companies and in listed companies that are liquid that can be sold Not, you know promoters shares that are held in a private agreement, but let's come to that a little later So what would have been the implications of this? fall in prices on 25th There was already a drop over 13,000 crores of share value was wiped out in that single day and there was complete panic Because if the price fall had continued on Monday, the shares could have gone down as much as 100 rupees Say some mutual fund people that I spoke to and this would have meant complete panic in the market Maybe a domino effect. Maybe stocks of other prices going down You have to remember that at this point of time there is complete panic among people because of Misbehavior and that's a strong word to use but there's nothing else to say misbehavior misgovernance by companies And it is not limited to Zee so people are very nervous and the first sign of bad news is enough for them to sell In fact, that's exactly what happened on 25th of February Because 25th of January now what happened is that wire which is a Digital news agency published a report which said that a company connected with the Zee group I think they called it Nityang Kinfrapar. It was even earlier called Dreamline Manpower had got an investment of 3000 crores in cash during demonetization It's a very long and detailed story on the wire which explains Very meticulously the links to Nityang Zee of course has denied any connection but obviously the market is not buying it because when the report came out people began to sell the stock as I said earlier this affected mutual funds and They panicked because here these are custodians of investors money and innocent Investors who had nothing to do with these decisions would have been badly hurt the market would have been badly hurt So they rushed to SEBI the regulator. This is the securities and exchange port of India and Offered a kind of bailout plan now remember no bailout happens on its own doesn't happen to everybody We are talking about Zee here and Zee's founder promoter is Mr. Subash Chandra. It's a chairman He is a member of parliament an independent but supported by the Bharatiya Janta Party, which is part of the ruling coalition Over the past five years One of the brightest spots for this government in spite of you know Very high oil prices in spite of the chaos by demonetization in spite of a badly introduced Goods and services tax was the stock market stock market was booming And so the government was able to argue that look people are convinced by what we are doing, right? Things seem to be falling apart with three months to the elections and When it happens to someone close or seen as close to the ruling party Obviously you have to do something about it So what I hear from my sources is that a lot of powerful people got onto the phone Calls were made and a plan hatched to save the day and it seems to have worked But let's look at what the implications are So the mutual funds rushed to sebi for what we hear initially and a news agency report In fact India Broad News Service wrote that we published it in money life It is that sebi would have none of it. It read them the riot act It correctly told them that they had no business lending against promoter shares and then complete silence We didn't hear anything more from the regulator So why was this happening again? Obviously to if you ask me, I think it was more phone calls, right? But then there's also another dimension to it Which is that the regulator at all times must work in investor interest and here we are not talking about one group alone We're talking about the broader market. We're talking about retail investors who had been leered to parked with their savings They have invested on the basis of one single slogan which is mutual funds Don't look at anything else. We do the right thing. We are the experts and there is loads of money of very very ordinary hardworking people in mutual funds So if you ask me About sebi's decision to keep quiet I think maybe there's some merit in it because saving the market from needless assault is a positive development But can it keep quiet forever? That is the big question But let's look first at what was this plan this bailout plan or save the Z group plan hatched out by mutual funds So mutual funds and three finance companies came together They call themselves a committee of lenders and they have told the promoters that you have to find a strategic investor and Sell shares and this strategic investor will also buy the 25% shareholding that is pledged with them This group of committee of lenders now notice the name committee of lenders. That's what they call themselves Okay, this sounds as though it is part of the bankruptcy procedure and it's got legal sanctity There is a statutory act nothing of that sort It is just a contract between a bunch of lenders. Yeah, sure They'll sign an agreement or multi-partite agreement But if there is a problem, there is no regulatory cover They'll end up in a court of law and that can drag on for 20 years So here's what happened this committee of lenders has said we are going to monitor what you do and You are going to sell these shares That is a time frame a timeline and they expect that within the next six months this 25% stake will be sold Simultaneously Mr. Chandra wrote a letter of apology a very strange letter of apology Which in fact on 25th evening when people saw it It's really scared them because it reminded them of the Satyam scam where suddenly Ramalinga Raju's letter in 2009 to the board of Directors has set off such a major upheaval in the market Fortunately, it wasn't that bad what he said is that I'm ready to I made a lot of mistakes a lot of About the history of the group how he intends to do the right thing and he said that I'm going to sell these Shares I'm going to pay the money. So that was a reassurance from the group Over the next few days, they had a whole lot of orchestrated interviews the media Which again said the same same thing over and over again that we will sell the shares and we will raise the money Now where had this money been put? Why were there so many losses as Mr. Chandra said in his letter a bit of it had gone into buying into misadventures You know, you could call them financial misadventures So he had invested money in buying DTH of videocon. That's a direct-to-home service He had invested in the defunct Infrastructure leasing and financial services. She had no business doing and now he has to sell his crown jewels to raise the money and payback Mutual funds with whom the shares are pledged How good is this deal? We don't know the next few months will tell us First of all each of these funds while they have come together have a different extent of collateral Which means that some have got the shares pledged against maybe one and a half times the market value Some of them may have less of a collateral Some may end up with a loss at the end of the day because it all depends on what price the shares are sold at People who are involved in this deal also tell us that They have told the management that all of them can get together and sell these shares If the management looks like not being in a hurry to find a suitor. I mean that is a question I asked them what happens if Zee says I will sell my stake, but I don't like any of the bridegrooms, right? So here they say in that case we will find a strategic investor. That's easier said than done Remember while it may be a chunk of 25 percent It's less than the 26 percent required for any special resolution Secondly with a 25 percent stake when the promoter holding is 42. Okay, it's going to come down to a minority It's hard to immediately take over a company because this would be a hostile action and under sebi rules You would need to make a 20 percent open offer, which means the amount of money Required will be fairly large and a very serious investor alone is going to come in Zee, of course It's a very attractive company. I'm not saying that people won't come in There will be people because not only Zee Hindi, but all its language channels have very high value They're profitable and doing extremely well. So it could well be that they will find a suitor But management has to cooperate. Otherwise, like I said, it could land up in court Now the question that I have is what about the regulator silence? Can the regulator remain silent? because mutual funds here have completely betrayed the trust of investors and They had no business doing the kind of deal that they did. So sebi may have remained silent now, but One expects that it has to punish the asset management companies for what they did and it has to conduct an inspection It has to see that nothing of this sort ever happens again Because if investors lose faith in mutual funds, it is going to be a big blow to the economy and Sebi is solely responsible for ensuring that that doesn't happen So far, like I said, sebi is silent and we need to see what it does I have another point to make which is mutual funds unlike you and me who are retail investors We may make mistakes. We may get carried away We may invest based on a tip in the market mutual funds are supposed to run research departments. They have compliance teams They have no business forgetting history and don't forget. Mr. Subhash Chandra has a controversial history He was deeply involved in the Ketan Parik scam and this is not me making an allegation It is hugely documented in the joint parliamentary committee report all that was pushed again to sebi to take action by the joint parliamentary committee and Money was moving in and out of you know company shares to bail out Ketan Parik It didn't work the market collapsed all this history is in the public domain So knowing this background what business did mutual funds have to lend money privately against promoter shares and who is responsible for ensuring and who knows how many other cases this is happening Who's responsible for cleaning this mess last time sebi behaved really badly While Z was negotiating a consent fee or five crores and haggling about it. It was let off with a warning Yes, as scandalous as this sounds it was not even a slap on the wrist. It was let off with a warning Will it do the same this time? I think people are watching this time the stakes are much higher the mutual fund industry is huge Investors are jittery and this time it is not a question of what the regulator does It is investors who will vote with their feet and they will send a signal And I think the regulator will be squarely responsible. So we are watching and we'll see what happens. Thank you