Sebi issues fresh notices to HDFC MF and Kotak MF on Essel exposure

Sebi headquarter in Mumbai
The Securities and Exchange Board of India (Sebi) has sent two more show cause notices to HDFC Mutual Fund (MF) and Kotak MF, initiating adjudication proceedings against the fund houses in a matter pertaining to investments in Essel Group firms.

Both fund houses had come under the spotlight in April as they were not able to make full repayment to their fixed maturity plan (FMP) investors. 

While HDFC MF, as a listed entity, informed about the development on exchanges, an email query sent to Kotak MF didn’t elicit any response at the time of going to press. Calls to Kotak MF Managing Director (MD) Nilesh Shah, too, went unanswered.

“We now wish to inform you that Sebi has issued two additional show cause notices, initiating adjudication proceedings against HDFC Trustee Company, i.e., the trustee company of the HDFC MF, and our MD Milind Barve and few other officials on May 31, 2019, in relation to the same subject matter,” HDFC MF said in an exchange disclosure on Saturday. 

Most MFs with debt exposure to Essel Group had entered into a ‘standstill’ agreement with the promoters, which effectively extended the maturity of these debt papers to September. Quite a few FMPs of HDFC MF and Kotak MF were maturing before the extended time line given to the Essel Group promoters.

However, both fund houses have maintained that the decision to give more time to Essel promoters to repay was keeping in mind the interests of the investors. 

Recently, reports of Japanese major Sony reviving talks with Zee to buy large stake in the latter suggested the decision taken by fund houses is likely to pay off. 

Industry officials feel the prospects of a deal have improved. “Prospects of the deal have improved after elections and strong quarterly results reported by Zee,” said a senior official of one of the fund houses with loan against share exposures to Essel Group firms.

As of March 31, 2019, the overall debt exposure of MF industry to Essel group firms stood at Rs 6,779 crore, showed data from Value Research.