LOAN AGAINST SHARES: SEBI MULLS STRICT DISCLOSURE NORMS FOR MUTUAL FUNDS – BUSINESS LINE
Mutual funds may no longer be able to sweep private funding deals with listed company promoters under the carpet. SEBI is likely to tighten the disclosure norms for MFs that lend to company promoters and may prescribe a cap on concentration of such deals, sources close to the development told Business Line.
Also, the regulator will ask MF trustees to be diligent on structured exposure, which is nothing but loan against shares (LAS).
It is estimated that MFs had extended in excess of ₹25,000 crore as LAS to a few corporates. Aditya Birla Sun Life MF, DSP MF and Franklin Templeton are among the top funds having high exposure via LAS. Such deals, wherein a few large MFs had indulged in non-banking finance company like financing, came to light just days ago. These funds are now stuck as the promoters have told MFs that they may immediately not be able to fulfil margin calls as the value of their shares, kept as collateral, has declined sharply. Loan to Zee group promoters falls under this category. MFs have now asked SEBI to let them give promoters more time to fulfil their obligation. The regulator is as of now is just watching the situation and has asked MFs to do their best to avert a crises and recover their money.
“The promoters have played enough games with the markets for long now. The new disclosure regime should also force promoters of listed companies to give reason for cutting such deals. Small investors will be reassured about buying stocks of such companies and know the risks fully,” said Arun Mukherjee, partner, SA Investments.
MFs mostly fund company promoters under debt segment schemes such as credit risk, medium term plan and dynamic bond funds by accepting their listed shareholding as collateral.
Interestingly, in most cases, the treasury funds of companies have subscribed to the debt schemes of MFs and the same fund house has extended LAS to the promoters. In effect, this is roundtripping of money that moves out of the company’s treasury and goes to the promoter via MF, which needs to be cracked down, experts told BusinessLine. “Even MF trustees should be accountable. Disclosures should involve amount of money borrowed and number of shares pledged with full details of other terms of the deal. Such enhanced disclosure can reassure markets,” said Anil Singhvi, founder, Ican Investment Advisors.
Apart from company treasury, many investors put money in certain categories of debt funds to earn higher returns than traditional fixed income instruments. Such debt schemes look for a number of investment options that can earn higher returns for their unit holders. LAS has a potential to generate return of anywhere between 8-24 per cent annually. But without adequate risk management such lending can put the fund under high pressure. Funds may have a cover of 1.5-2.5x on the money it lends and shares can be sold in case the borrower delays payment. Fund house asks the promoter to top up the collateral or give some other liquid security like a fixed deposit.
Hi there I am so thrilled I found your blog, I really found you
by mistake, while I was searching on Askjeeve for something else, Anyways I am here now and would just like to say kudos for a incredible post and a all round enjoyable
blog (I also love the theme/design), I don’t have time
to go through it all at the moment but I have bookmarked it and also added your RSS feeds,
so when I have time I will be back to read much more, Please do keep up the great work.
I love your blog.. very nice colors & theme.
Did you make this website yourself or did you hire someone to do it for you?
Plz respond as I’m looking to design my own blog and would like to
know where u got this from. many thanks
Great blog you’ve got here.. It’s difficult to find excellent
writing like yours these days. I honestly appreciate people like you!
Take care!!
Wonderful blog! Do you have any hints for aspiring
writers? I’m planning to start my own website soon but I’m
a little lost on everything. Would you propose starting with a free platform
like WordPress or go for a paid option? There are so many options out
there that I’m completely overwhelmed .. Any tips? Thanks!
It’s perfect time to make some plans for the future and it’s time to be happy.
I have read this post and if I could I desire to
suggest you some interesting things or advice. Perhaps you
can write next articles referring to this article.
I want to read even more things about it!
A motivating discussion is worth comment. I believe that you should write more
on this topic, it might not be a taboo matter but usually people do
not discuss such subjects. To the next! Best
wishes!!
Hola! I’ve been reading your site for a long time now and
finally got the courage to go ahead and give you a shout out from Lubbock Tx!
Just wanted to tell you keep up the excellent job!
Thanks for finally writing about >LOAN AGAINST SHARES: SEBI MULLS STRICT DISCLOSURE NORMS FOR
MUTUAL FUNDS – BUSINESS LINE | Intellex Consulting <Liked it!
You actually make it seem so easy with your presentation but I
find this topic to be really something that I think I would never understand.
It seems too complex and extremely broad for me.
I’m looking forward for your next post, I will try to get the hang of
it!
Thank you for every other informative web site. The place else may I
am getting that kind of info written in such an ideal means?
I’ve a undertaking that I’m simply now working on,
and I’ve been at the look out for such information.