Sebi moves on standstill pacts, says they are illegal

By: and |
Updated: September 27, 2019 6:54:12 AM

The Sebi chief was also of the view that sophisticated investors like MFs should not completely depend on credit rating agencies and should have their own way of assessing before taking a call.

As per Sebi’s shareholding norms, an institutional investor can hold up to 15% in an exchange while a trading member or broker cannot own more than 5%.As per Sebi’s shareholding norms, an institutional investor can hold up to 15% in an exchange while a trading member or broker cannot own more than 5%.

Securities and Exchange Board of India (Sebi) chairman Ajay Tyagi on Thursday said the regulations do not permit standstill agreements between mutual funds and borrowers.

“Entities have to follow the regulations that are there. There is no confusion on that,” Tyagi said on the sidelines of an industry summit.

The markets regulator also said it has issued regulations on inter-creditor agreements (ICAs). On reports of SBI writing to Sebi to make an exception in the DHFL restructuring case, Tyagi said “we already have regulations on ICAs for mutual funds and that is the policy”.

Addressing a capital markets summit, Tyagi said Sebi was re-examining the concept of “company promoters” vis-a-vis “controlling shareholders”. He noted that Sebi has been sticking to the concept of promoters for many years, and now the market regulator needs to study the concept of “controlling shareholders” who dominate the developing world today.

The Sebi chairman also hinted that Life Insurance Corporation (LIC) may have to divest its holding in the National Stock Exchange.

“Whatever excess shareholding they have, they will have to divest,” he said, adding that there is no deadline by which he expects the divestment.

As per Sebi’s shareholding norms, an institutional investor can hold up to 15% in an exchange while a trading member or broker cannot own more than 5%.

Meanwhile, when asked about the Securities Appellate Tribunal (SAT) judgment in the PwC matter, Tyagi said Sebi’s legal team is examining the same.

The Sebi chairman’s observations on standstill agreements come a day after the Subhash Chandra-led Essel Group claimed it has the unanimous backing from lenders, including fund houses, to further extend its repayment timelines. Mutual funds had first given an extension, or a standstill agreement to the financially embattled group till September, setting a precedent. This move was done in the wake of a huge fall in the market price of Zee Entertainment Enterprises, the flagship company in the group, where promoters had pledged holdings.

The Sebi chief was also of the view that sophisticated investors like MFs should not completely depend on credit rating agencies and should have their own way of assessing before taking a call.

He said the unsophisticated investors in the retail category need the rating agencies more. There is also a need to go beyond the current preference for top-rated paper in corporate bonds and also look at extending the tenures, he said.

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