Sebi to seek securitised debt details Sebi vetting bulk sale of shares
■ Mutual funds come under regulator’s lens for possible fraudulent deals
Sebi will soon ask domestic mutual funds to furnish details of their exposure to securitised debt papers issued by promoter group companies.
It is suspected that several debt mutual funds have entered into questionable deals with promoters of companies like Yes Bank and Sun Pharma, providing funds by circumventing rules on loan against shares.
Industry experts say these deals could amount to almost 10 per cent of the `15 lakh crore assets under management (AUM) of MF debt funds.
Sources say the regulator will ask all debt MF managers to disclose all the structured deals involving investments in securitised debt paper/bonds issued by promoter/related/associate entities that have promoter shares as only underlying asset against which these loans are backed.
The amount involved in these effectively loanagainst-shares transactions is estimated to be in the region of `1.5-1.7 lakh crore, that is about 10 per cent of the entire AUM under debt funds and almost a fifth of the banking industry non-performing assets, or NPAs, sources said.
The suspicion is that these transactions have been ingeniously structured to circumvent extant Sebi and RBI guidelines on loan against shares.
The net inflows into mutual funds have thinned last month as investors are waking up to their funds’ net asset value shrinking, partly on market volatility caused, to an extent, by questionable investment deals done by debt fund managers. The fund managers have knowingly invested in illiquid securitised debt and failed in their fiduciary duty of protecting and enhancing investors' funds.
According to sources, mutual funds and rating agencies are under the Sebi lens for indulging in fraudulent transactions of securitisation of debt papers issued by promoter holding companies.
The sources say regulators are examining if debt fund managers have circumvented the loan against shares rules of RBI and Sebi.
Yes Bank and Sun Pharma episodes, where MFs investing in firms like Yes Bank promoter Rana Kapoor’s Morgan Credits and Sun Pharma promoterlinked firm Suraksha Realty, have brought out fraudulent practices by promoters in nexus with debt mutual funds.
Holding company of promoters — for example Morgan Credits, which is holding Yes Bank shares and nothing else — securitises its equity share holdings in a private company vehicle and goes to the rating agency for a favourable credit rating on the back of excess shares given as margin to take care of any decline in the share price and places the bonds issued by the holding company with debt MFs. Markets regulator Sebi is looking into the open market sale of pledged shares of three Reliance Group companies by L&T Finance and Edelweiss Group.
According to sources, the regulator has asked exchanges to look into the trade details and seek clarifications from the concerned entities regarding the open market sale of shares to ascertain if any norms were breached in the process.
Last week shares of Anil Ambani-led Reliance Group companies — Reliance Power, Reliance Infrastructure and Reliance Capital — plunged after their pledged shares were offloaded by the two lenders.
These companies had written to Sebi to investigate the matter and impose restraints on entities that pressed huge sale orders significantly below the prevailing market price.
The companies have asked for in-depth investigation into the matter.
Reliance Group has accused L&T Finance and Edelweiss Group entities of “illegal” and “motivated” actions in invoking the pledged shares.
L&T Finance and Edelweiss Group have refuted the allegations and have counter-alleged that Reliance Group failed to make timely payments, which, they said, necessitated sale of pledged shares.
Earlier on Saturday, boards of the three listed companies of the group — Reliance Power, Reliance Infrastructure and Reliance Capital — had approved and recommended “all appropriate legal steps” to protect shareholders’ value.
L&T Finance and Edelweiss had issued statements on Friday in which they had strongly refuted the allegations of Reliance Group.
(With inputs from agencies)