Governance issues are being raised at mutual funds for offering a second extension to Zee Entertainment promoters for repaying their debt to mutual funds.

While the extension to the deadline comes as a relief to Zee promoters, could it impact the mutual funds as a category overall? Experts think so.

"It is unfair for mutual funds to extend debt repayment deadline as this will impact the unitholders of these mutual funds," Shriram Subramanian, MD at proxy advisory firm InGovern, told BusinessLine.

Also read: Essel group gets extension to repay Zee’s debt

"Mutual funds should've learnt their lessons by now of lending money to company promoters. They are favouring company promoters at the cost of their unit holders.," Subramanian said.

He said if mutual funds lose the trust of the investor, it'll not just impact the few lenders of Zee Entertainment but the industry as a whole.

"The trust on mutual funds took over a decade, and it can be sabotaged overnight by such a move," Subramanian said.

Zee Entertainment had entered a standstill agreement with its lenders to extend repayment deadline to September 30 after it missed its initial period. SEBI had raised serious objections over this.

Since then, Zee has already returned about half of the ₹11,000 crore owed to lenders but is expected to miss the new repayment deadline. Fearing this, Kotak Mutual Fund and SBI Mutual funds already sold the pledged shares of Zee Entertainment they were holding.

It is not clear if SEBI will allow an extension, given its recent objections to similar pacts.

"As per the official communication issued on 20th September 2019, the Group was in a steady and progressive dialogue with all the lenders. The mentioned extension of the timeline was requested purely in the interest deriving the true value of the precious assets of the Group. The lenders have extended complete support to the Group and its Promoters, recognizing the intrinsic value of the assets and the overall asset divestment process are undertaken. The Group remains confident on further divestments including its non-media assets," Essel group spokesperson said on Wednesday.

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