MUMBAI: Markets regulator Sebi plans to come out with more difficult norms for debt tools issued by way of companies with promoter’s stocks as collateral following a number of mutual price range going through bills delays over these investments.
Early this year, promoters of Essel Group companies had not on time bills to fund homes which owned these tools, known as “mortgage in opposition to stocks” (LAS) in trade parlance.
In an try to give protection to the pastime of mutual fund investors, some of the primary objectives of the brand new regulations for these tools would be to prescribe a minimal collateral quilt that fund homes need to care for, sources stated.
This is consistent with the RBI norms that prescribe a minimal collateral quilt for lending in opposition to stocks by way of banks and NBFCs. There had been demands to prohibit LAS, however the regulator is known to be in opposition to this kind of drastic measure for now. One of the principle reasons for now not banning such tools is that the transfer would utterly close the most important source of price range for promoters and marketers, sources stated.
In January, the promoters of Essel group stated that due to the liquidity crunch they were not able to pay again all bondholders in opposition to which that they had raised money. Following this disclosure, it got here to gentle that a number of fund homes had the ones debt papers of their portfolio, which have been backed by way of stocks of indexed companies throughout the group like Zee Enterprises, Essel Propack and others. So in effect, these shares got to the fund homes as collaterals for the loans the promoters had taken from these MFs.
After the promoters not on time cost at the bonds, fund homes needed to lengthen compensation to their investors. This, in turn, led to no less than two fund homes — HDFC MF and Kotak MF — and their best executives getting show-cause notices from Sebi as to why suitable actions will have to now not be taken in opposition to them for his or her resolution to defer paying their investors. Several other fund homes even have LAS on their books however the ones are but to come up for compensation.
“The working out inside Sebi is that so long as all the risks on the subject of these tools (LAS) are adequately lined, they will have to now not be banned since these are a popular source of price range for promoters and marketers,” a source stated. “It’s true these tools include their very own set of risks. So the suitable thing to do is to put in place prudential norms for fund homes to put money into these tools,” some of the sources stated.
Early this year, promoters of Essel Group companies had not on time bills to fund homes which owned these tools, known as “mortgage in opposition to stocks” (LAS) in trade parlance.
In an try to give protection to the pastime of mutual fund investors, some of the primary objectives of the brand new regulations for these tools would be to prescribe a minimal collateral quilt that fund homes need to care for, sources stated.
This is consistent with the RBI norms that prescribe a minimal collateral quilt for lending in opposition to stocks by way of banks and NBFCs. There had been demands to prohibit LAS, however the regulator is known to be in opposition to this kind of drastic measure for now. One of the principle reasons for now not banning such tools is that the transfer would utterly close the most important source of price range for promoters and marketers, sources stated.
In January, the promoters of Essel group stated that due to the liquidity crunch they were not able to pay again all bondholders in opposition to which that they had raised money. Following this disclosure, it got here to gentle that a number of fund homes had the ones debt papers of their portfolio, which have been backed by way of stocks of indexed companies throughout the group like Zee Enterprises, Essel Propack and others. So in effect, these shares got to the fund homes as collaterals for the loans the promoters had taken from these MFs.
After the promoters not on time cost at the bonds, fund homes needed to lengthen compensation to their investors. This, in turn, led to no less than two fund homes — HDFC MF and Kotak MF — and their best executives getting show-cause notices from Sebi as to why suitable actions will have to now not be taken in opposition to them for his or her resolution to defer paying their investors. Several other fund homes even have LAS on their books however the ones are but to come up for compensation.
“The working out inside Sebi is that so long as all the risks on the subject of these tools (LAS) are adequately lined, they will have to now not be banned since these are a popular source of price range for promoters and marketers,” a source stated. “It’s true these tools include their very own set of risks. So the suitable thing to do is to put in place prudential norms for fund homes to put money into these tools,” some of the sources stated.
Sebi to tighten rules to shield MFs from delay in payments
![Sebi to tighten rules to shield MFs from delay in payments]()
Reviewed by Kailash
on
June 10, 2019
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