Mumbai: The Sebi board on Thursday decided on key reforms regarding promoters’ pledge of shares, liquid funds and royalty payments and credit rating firms, besides setting a framework for differential voting right shares for tech companies.
The markets regulator announced a set of reforms after its board meeting where it discussed issues around shares encumbered by promoters and the mutual fund industry’s exposure to these structures.
Other major decisions include promoters pledging their shares to take debt in unlisted companies to fund other businesses, which increases the leverage of the entire group.
Early this year, the Essel Group companies, which had raised over Rs 7,000 crore from mutual funds against debt securities, faced a payment crisis. The fund managers agreed not to sell the pledged promoter shares until end-September on a promoter’s guarantee. This standstill agreement affected the pay-out of fixed maturity plans of Kotak Mahindra AMC and HDFC AMC.
In a further tightening, promoters, promoter groups and persons acting in concert will need to disclose the reason for creating an encumbrance as soon as 20 per cent of their share capital is leveraged.
It has also started action on 'standstill' pacts between companies and mutual funds.
Liquid schemes shall be mandated to hold at least 20 per cent in liquid assets such as cash, government securities, T-bills and repo on government securities.
The cap on sectoral limit of 25 per cent shall be reduced to 20 per cent.
The additional exposure of 15 per cent to housing finance companies shall be restructured to 10 per cent in HFCs and 5 per cent exposure in securitised debt based on retail housing loan and affordable housing loan portfolios.
The valuation of debt and money market instruments based on amortisation shall be dispensed with and shall be based on mark to market.
Sebi Chairman Ajay Tyagi told reports after a board meeting that it has been decided to ban mutual funds from entering into standstill pacts with companies, apart from making them hold at least 20 per cent assets of liquid funds in cash equivalents.
Tyagi also said the Sebi has started the adjudication process against some credit rating agencies.
He said the regulator has completed its probe into the Whatsapp leaks and the report will be put into the public domain shortly.
The Sebi also approved a new framework for issuance of differential voting right (DVR) shares from July for tech companies, making the process easier for promoters of such companies go in for initial public offerings. Under the new framework, a tech company having superior voting rights shares (SR shares) will be permitted to do an IPO of only ordinary shares to be listed on the main board.
The Sebi board also discussed in-principal approval for changes in the method of calculation of net asset value, with a view to tackle the problem of concentration of asset under management with just 10 asset management companies and increasing the scope of the definition of encumbrance.
