Why Are Yes Bank And DishTV Locked In A Fierce Battle?

Yes Bank and Dish TV have been caught in a dispute since the last few months. At the centre of the issue are the 47 crore shares of Dish TV that have been acquired by Yes Bank following defaults/breaches by Essel Group entities. Together, these 47 crores share represent around a quarter of Dish TV’s total paid up capital.

Essel Group Defaults

Yes Bank acquired Dish TV’s shares after it witnessed persistent defaults and breaches by Essel Group entities. The bank revved into action when Dish TV announced a plan for a rights issue of Rs 1,000 crore, which the bank sees as a way for the promoters to raise their stake in the company while diluting the bank’s stake.

These entities include Essel Business Excellence Services, Essel Corporate Resources, Living Entertainment Enterprises, Last Mile Online, Pan India Network Infravest and several others. According to the Essel Group, these loans were given out under the aegis of Yes Bank’s former managing director Rana Kapoor.

Dish TV is related to the Essel Group, and is run by the founder Subhash Chandra’s brother Jawahar Lal Goel. The promoters of Dish TV hold a meagre 6 per cent stake in the company with while public shareholders hold around 94 per cent of the shares.

With most of the holding being fragmented among entities, Yes Bank is the largest single shareholder of Dish TV at this point. Other financing companies such as Housing Development Finance Corporation (HDFC Limited), IndusInd Bank, and Clix Capital held a large percentage of shares as well.

Why Does Yes Bank Want to Take Over Dish TV?

Yes Bank’s major concerns are that the promoters are using the rights issue to dilute Yes bank’s stake. It also believes that the promoters who own just six per cent of the company have been controlling the board of directors. Further, it believes that the board has purposely side-lined its requests for a reconstitution.

Both Yes Bank and the Essel Group have a lot at stake. For Yes Bank, almost a fourth of its non-performing loans belongs to the Essel Group and related entities. Yes Bank has Rs 28,609 crore in non-performing assets, of which around Rs 6,500 crore have come from Essel Group defaults.

The Essel group, that has been losing its assets one after the other, is attempting to save the remaining few assets from its lenders and shareholders.

Consequently, the Yes Bank has been asking for a management change at Dish TV in a bid to restructure the company with cooperative management and recover its money. It plans to revamp the board of directors with seven new directors, and remove Jawahar Goel, the managing director.

However, the company has been rejecting Yes Bank’s move to call an Extraordinary General Meeting (EGM) with shareholders. In a bid to protect itself, the company’s current management has been delaying the Annual General Meeting, while vehemently opposing the EGM. The Essel Group’s flagship company Zee Entertainment is facing a similar scenario where the largest public shareholders have been asking for an EGM as well.

Both Zee Entertainment and Dish TV face similar scenarios. Both companies have extremely low promoter holdings, with the largest shareholders attempting to take control of the group. But so far, both have been able to delay the proceedings and the promoters still control the company boards.

Yes Bank’s Frozen Shares

Subhash Chandra filed a case against Yes Bank in Greater Noida and initiated civil proceedings against the bank in the pledged share invocation case. While the bank was initially stopped from selling off the shares, the restraints were later removed by the court.

But, on 6 November, the exchanges received a communication from Dish TV saying that the Uttar Pradesh crime branch had restricted the sale of shares by Yes Bank. With frozen shares, Yes Bank would have been unable to vote on the rights issue during the AGM scheduled for 30 November after significant delays.

Such interference by the police could prove to be detrimental to India’s lenders as it would mean that the pledge has no significance. As a result, a borrower who has defaulted on the loans can stall sales of pledged assets, thereby impeding the loan recovery process. Such transactions, if allowed, could mean that all business entities that default could impede the recovery process by filing such complaints against banks.

Nevertheless, the Supreme Court put a stay on the share freeze on Tuesday (30 November), allowing Yes bank to own the shares. Given the fact that the AGM will finally be held after months of delay, Yes Bank can now vote against the Rs 1,000 crore rights resolution that it believes to be a move to increase promoter shareholding.

But whether it can replace the company’s existing management is yet to be seen. Like Zee, we could possibly see a drawn out legal battle between promoters and the shareholders who wish to take over the company.