SEBI Declines To 'Bless' Zee Moratorium Being Contemplated by Mutual Funds
IANS 04 February 2019
A chastened collective of five leading mutual fund (MF) CEOs (chief executive officers) and ratings agency chiefs emerged from a meeting with SEBI (Securities and Exchange Board of India) member Madhabi Puri Buch on Monday morning, following a story broken by IANS on Sunday, after a shellacking over lapses in their judgement in taking huge debt exposure to the Zee group promoters against inadequate and illiquid collateral.
 
The Indian MF industry has lent a staggering Rs7,000 crore to Zee group's promoters and after the recent debacle in the stock price, the value of the security is less than even the principal amount due to them, leave aside any margin.
 
Sources in SEBI revealed that the regulator was categorical in its assessment over what had transpired and had firmly communicated it to the delegation.
 
Firstly, MF industry players could not enter into any moratorium dialogue or agreement with an errant corporate group under existing MF rules and regulations. This tantamounted to restructuring which banks could do, but not MFs. The regulator clearly told the industry representatives that what they were contemplating was akin to shadow banking, something clearly beyond their permitted activities. 
 
Secondly, the MF industry was told it should have done a well-rounded risk assessment of its massive exposure to a corporate group where the debt levels were worrisome, before taking on such concentrated exposure. The regulator said if the only justification for not liquidating the shares now was the expected loss to investors, the industry should not have made such investments; otherwise, what was the purpose of taking any security?
 
Thirdly, the MFs should have given adequate warning to investors who had subscribed to the MF schemes that they were taking on the risk of illiquid security for debt investments which might not be encashable on default and might lead to losses for investors.
 
On an impassioned request by the five CEOs that SEBI should 'bless' the contemplated moratorium as a one-off case, the regulator categorically and firmly rejected this plea, stating that there was no provision in existing rules and regulations for any such moratorium, leave alone for a condonation of the same. 
 
The regulator's tone and tenor was clear as daylight that the MF industry heavy hitters had gravely erred in their judgement, and now it was for them and their respective boards of directors/trustees to decide how to proceed in the matter.
 
The regulator also refused to countenance the MF industry stand that the moratorium was in the best interests of investors, stating this was something time alone would tell, and SEBI was holding out no assurance that in subsequent inspections/audits this was something which would be overlooked.
 
Separately, in a statement, Essel group has denied receiving any communication from the market regulator or any mutual fund company about its moratorium. "This is with reference to some media reports and independent comments or opinions shared on social media platforms. Vide this press note, Essel Group wishes to state that we have not sought any permission from SEBI, as there is no regulatory requirement, and hence we have not received any communication from SEBI or from any mutual fund company, pertaining to a decision taken with regards to the moratorium," Essel group said in the statement.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

 

Comments
VIVEK SHAH
7 years ago
All this boils down to the shady deals that the rating agencies strike with the promoters. The fund managers too should be punished for overlooking such grave risks.
Aqeel Qureshi
7 years ago
This is surprising 🤔
It is only yesterday that I read one advertisement billboard of the mutual fund association that 'Mutual Fund investment mein patience rakhna padta hai' and that
Mutual Funds are 'sahi hai'
How is it that the regulator itself is losing patience?
Seems the regulator isn't informed enough as the mutual fund association and their reasonings.
Someone there should send a copy of the research that led to their 'patience' ads to the regulator.

Amazing circus going on in our country!
Kanu Warriar
7 years ago
Kindly check your disclaimer, a "not" missing, looks like:
”As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article."
MDT
Replied to Kanu Warriar comment 7 years ago
Thanks for your comment. This news is sourced from IANS and thus the agency is responsible for the content in this news article. Kindly read the entire disclaimer in full.
Harish Kohli
7 years ago
Well done SEBI. Finally you are biting, though it will take some for the rust to go away. Some mutual funds will learn their lesson, some would say "woh apne aap ko samjhte kya hain".
BV SUDHANVA
7 years ago
professionals who can manage other peoples money only.
Free Helpline
Legal Credit
Feedback