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Taking a serious note of some mutual fund houses’ exposure to loan against share schemes, the markets regulator SEBI on Thursday tightened the norms for disclosing the details of pledged shares by promoters.
Loan against share schemes involve debt mutual funds investing in debt papers of little-known/lower-rated companies on the backing of promoter shares.
As per the new directions issued after a board meeting, SEBI said any direct, indirect lien on shares will qualify as encumbered shares.
“The promoters will have to furnish reasons if combined encumbrance crosses 20 percent of the company’s equity capital,” SEBI said after the board meeting.
It can be noted that following the liquidity crisis among leading NBFCs, which began after the IL&FS group went belly up last September, shadow banks like DHFL, and media powerhouse Zee group among others had defaulted on their debt.
Both these companies however entered into standstill agreements with their lenders.
Read also: HDFC MF to provide ₹500-cr liquidity for redemption of FMPs
The largest AMC, HDFC Asset Management Company had said it would buy back NCDs of DHFL worth Rs 500 crore which it could not redeem on time from its fixed income plan investors. This meant that the shareholders of HDFC AMC would take a hit of Rs 500 crore.
However, Kotak AMC, which also could not redeem its units on time, had asked its fixed income plan investors to wait for another year for payments.
Read more: SEBI raises disclosure norms; tightens rules for mutual funds
SEBI further said if the amount of pledged shares of a company is over 20 percent, then its audit panels will have to be kept informed of any undisclosed encumbrance.
It can be noted that these new tighter norms have come in as a result of the recent crisis faced by some mutual fund houses which had exposure to loan against share schemes. Under this, debt mutual funds invested in papers of little- known/lower-rated companies were backed by promoter shares.
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