The Securities and Exchange Board of India (Sebi) on Thursday said standstill arrangements between mutual funds and their borrowers do not exist in any regulations and that fund houses must follow the rules.
This observation comes a day after lenders, including mutual funds, gave additional time of six months to the Essel group to repay debt.
Mutual funds had first given an extension, called a standstill agreement, to the financially embattled group till September, creating a precedent. This move was done in the face of a massive decline in the market price of Zee Entertainment Enterprises, the flagship company in the group, where promoters had pledged holdings.
In June, Sebi chief Ajay Tyagi had criticised the practice of fund houses entering into stand-still arrangements with certain companies.
He said the funds were not banks and they were engaged in investment activity and not lending.
“Mutual funds are not banks, so there’s nothing called standstill. They are investing, not lending,’’ he had said.
Speaking to reporters at the sidelines of the 16th Annual Capital Market Conference – CAPAM 2019, organised by Ficci on Thursday — he said such arrangements are not part of mutual fund regulations.
“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,’’ he said.
He was answering a specific question on how standstill agreements continue being forged by entities.
Earlier, speaking at the conference, Tyagi said the market regulator is re-examining the concept of company promoter compared with controlling shareholders.
Tyagi said Sebi has been sticking to the concept of promoters for many years, and there is also a need to study controlling shareholders which dominate the developing world.
“Keeping in mind changing realities of the global and Indian markets, we are examining the relevance of the concept of ‘promoter’ in today’s times along with whether any changes to Sebi regulations are warranted in this regard,” he said.
Sebi, he further disclosed, is also working on how to increase the pace of rights issues. The regulator had come out with a consultative paper on the mode of fund raising in May. It had proposed to reduce the overall time taken for rights issue to around 31 days as well as make the application and allotment process more efficient.
Currently, the rights issue process takes 55-58 days from the time a company decides to launch the issue till the listing.
Meanwhile, the regulator came out with new norms that make it mandatory for companies to provide details on delayed loan repayments and possible defaults to credit rating agencies amid concerns over banks citing “client confidentiality” to resist sharing of such information by their borrowers. The new framework would enable credit rating agencies to get timely information on possible defaults.
On DHFL
On reports of the SBI writing to Sebi to make an exception in the DHFL restructuring case, he said we already have regulations on Inter Creditor Agreements (ICA) for mutual funds and that is the policy.
Tyagi hinted that life insurance behemoth LIC may have to divest its holding in NSE which does not meet the norms.
Whatever excess shareholding they have, they will have to divest, he said, adding that there is no deadline by which he expects the divestment.
According to Sebi’s shareholding norms in stock exchanges, an institutional investor can hold up to 15 per cent, while a trading member or a broker cannot own more than 5 per cent. Earlier, LIC was classified as an institutional investor, but after its IDBI Bank acquisition, it is deemed to be a trading member.
LIC and IDBI Bank together own 13.96 per cent in the bourse.
Meanwhile, when asked about the Securities Appellate Tribunal (SAT) judgment in the PwC matter, he said Sebi’s legal team was examining the the matter.
Tyagi said sophisticated investors such as mutual funds should not completely depend on credit rating agencies and should have their own way of assessing before taking a call.
