SEBI hauls up MFs over standstill pacts
The Hindu , Sep 26, 2019
The Securities and Exchange Board of India (SEBI) has pulled up mutual funds for entering into standstill agreements with promoters and has clarified that regulations do not have provisions for such arrangement between corporates and asset management companies (AMCs).
“It is not there in any of the regulations. We have made our position clear. Entities have to follow the regulations that are there. There is no confusion in that,” SEBI chairman Ajay Tyagi said at a capital market conference organised by industry body FICCI.
The SEBI chief was replying to a specific query on how some fund houses were entering into such standstill agreements.
Deadline with Essel
This assumes significance as the SEBI statement comes only a day after certain fund houses extended the deadline of such agreements with Essel Group, which had earlier got time till September to meet its repayment obligations.
While such standstill agreements have come under criticism by a section of market participants, they have found favour from some fund managers who feel that they ensure that the investments do not turn junk.
“There is only a liquidity issue as the company is fundamentally strong and has assets that can be monetised. Panic sale will only put further pressure on the stock and hence giving the company more time is a prudent call,” said the head of a domestic fund house that has an exposure towards Essel Group.
On a different note, Mr. Tyagi said that the regulator was examining the order by the Securities Appellate Tribunal (SAT) in the Price Waterhouse (PW) matter, wherein the tribunal said that the capital markets watchdog has no jurisdiction over the audit firm and hence cannot bar it from the capital markets.
Mr. Tyagi also hinted that following the acquisition of IDBI Bank, Life Insurance Corporation of India (LIC) will have to dilute its stake in the National Stock Exchange (NSE).
“Whatever excess shareholding they have, they will have to divest,” he said, adding that there was no deadline by which he expects the divestment.
As per SEBI norms, certain categories of investors, including insurance companies, can hold up to 15% in a stock exchange. However, post its acquisition of IDBI Bank, the insurance behemoth will be classified as a deemed trading member and hence cannot hold more than 5%.
Currently, LIC and IDBI Bank collectively hold nearly 14% stake in NSE.