Shares of Zee Entertainment Enterprises tumbled 15 per cent on Wednesday after Bloomberg reported that Securities and Exchanges Board of India (SEBI) had found a $241 million accounting issue in the company’s finances. The reports suggest that SEBI’s preliminary findings show that the amount had been diverted out of Zee’s books and Zee promoters had been called in for questioning by SEBI. 

This amount was 10 times higher than the investigators had initially investigated, per reports. 

However, later, the company spokesperson clarified that the reports related to accounting issues are “incorrect and false”.

Hours after the report, Zee stock price tumbled by 10 per cent at the bourses on Wednesday. The stock closed 14.77 per cent lower at ₹164.50 against its previous day’s closing. Zee stock price has fallen by nearly 18 per cent since Sony announced its plans to terminate merger deal on January 22.

A Zee spokesperson said, “The reports and rumours pertaining to accounting issues in the company are incorrect and false. Pursuant to the Securities Appellate Tribunal (SAT) order, which granted relief to the current Key Managerial Personnel (KMP), the company has been in the process of providing all the comments, information or explanation requested by SEBI, and has extended complete co-operation on all aspects.”

Merger gone kaput

Zee and Sony have been at odds regarding the merger since August 2023, when SEBI issued its first allegations of Promoter and CEO Punit Goenka and Subhash Chandra misappropriating funds from the media firm. 

Following the SEBI investigation, Sony sought to oust Goenka from the position of the CEO and MD of the merged firm. On January 22, Sony scuttled the deal following a long stalemate on the merger between the two firms. 

On Tuesday, Zee shares rose by eight per cent amid reports that Zee and Sony Pictures Networks (India) are working to salvage their $10-billion merger. This report was also denied by Zee stating that no such negotiations are taking place.

Though ZEEL is actively implementing measures to revive the business and efficiently run business operations as a stand-alone entity, concerns around weak financial positioning, corporate governance, and litigation outcomes continue to remain, said Keynote Capital. “Owing to the above, we continue to apply a significant discount (25 per cent now versus 30 per cent earlier) to ZEEL’s 5-year median PE. Therefore, based on our revised estimates, we downgrade our rating on ZEEL from Neutral to Reduce with a target price of ₹176 (~18x FY25E earnings),” the domestic brokerage house said.