June 04, 2019

SEBI Sends Show Cause Notices To Officials Of Mutual Fund Houses For Extending Maturity Of Fixed Maturity Plans

[ By Bobby Anthony ]


HDFC Mutual Fund Managing Director Milind Barve, some top officials at the company as well as HDFC Trustee Company were sent legal notices by the Securities and Exchange Board of India (SEBI) on May 31.

The show cause notices were sent for extending the maturity of its fixed maturity plan, due to the Essar Group’s inability to repay its loans.

Incidentally, the capital market regulator SEBI had issued separate show cause notices to HDFC Mutual Fund and Kotak Mutual Fund earlier, seeking details of the terms of their investments in Essel Group’s debt securities.

The regulator had questioned the agreement between the mutual funds and Essel which gave the latter time until September to repay its loans.

SEBI also questioned the legal standing of any such agreement though mutual funds had defended their decision about the agreement, claiming that it was in the best interest of investors.

Essel had pledged its shares with its lenders which included mutual funds and non-banking finance companies, in order to borrow from these entities.

However, Essel failed to replenish the collateral after share prices of its group companies, namely Zee Enterprises and Dish TV, crashed in late January.

The mutual funds mentioned above did not sell the shares of Essel pledged with them, since doing so would have led to a steeper decline in their value. They also gave Essel time until September 30 to repay the money.

In the meantime, HDFC Mutual Fund is learnt to have given its unit holders, the option of rolling over investments for another 380 days, instead of redeeming them at maturity in mid-April.

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