Barings Asia looks to exit investment after Karvy comes under Sebi lens

A month after the Securities and Exchange Board of India (Sebi) and Bengaluru police began their probe into the alleged misuse of client securities by Karvy Stock Broking (KSBL) in June, Ashish Agarwal, the lone representative of Barings Private Equity Asia on the board of KSBL, had resigned from it in July.

Barings Asia had invested in KSBL in 2007 and held a minority stake in the company; it had a seat on the KSBL’s board. When contacted, a Barings Asia spokesperson said: "Baring Private Equity Asia has been exiting its stake in Karvy in an orderly manner and Agrawal's resignation was part of that process. Neither Baring nor Agrawal knew about the Sebi investigation at the time of his resignation."

Barings had acquired the stake in November 2007, along with ICICI Venture. They together held a 30.95 per cent stake in KSBL. The two private equity firms had bought the entire 20 per cent equity held by Pacific Century Group and bought an additional 10.95 per cent stake by investing in the fresh equity of Karvy Stock Broking.

 In FY17, Karvy Consultants, the promoter company of Kargy Group, acquired the stake of ICICI Venture, even as the financials of the company started deteriorating.

On June 19 this year, media reports from Bengaluru said several investors complained to the local police about default in payment of dues from Karvy Wealth. The police had booked all the directors of KSBL including Agarwal, and directors of its subsidiary, Karvy Realty and Karvy Capital. The complainants told police that there are several other investors who were duped by the company and they did not receive any returns since 2017. The instruments offered to the complainants offered 18-20 per cent returns.

 
In a statement, Karvy denied the charges made by the investors and said these complainants had invested in high yield-high risk investments and it did not mislead any customer. 

 
Meanwhile, on November 22, Sebi accused KSBL of diverting Rs 1,100 crore from the company to a real estate subsidiary and of pledging the clients shares to raise funds from lenders. Sebi also banned Karvy from acquiring new clients for its stockbroking business.

 
Indian lenders, which have an exposure of Rs 2,900 crore in Karvy group companies, are taking legal advice on how to enforce the collateral taken from Karvy.

 
Karvy has denied the charges made by the Sebi and said it has the right to respond to each preliminary observation made by Sebi within 21 days and is thus only a temporary order restraining some actions until December 16, 2019, when it will represent its position to Sebi.

 
The company has also not issued any financial details to the ratings firm and on Wednesday, rating firm ICRA downgraded the company citing lack of information from the company.


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