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SEBI has issued a new framework for MF sponsors in which it has clarified that private equity players wanting to become MF sponsors will have to maintain net worth of Rs.150 crore. Further, the market regulator has not clarified if this net worth requirement is applicable to existing MF players.
A CEO requesting anonymity told Cafemutual that a group of MF CEOs have spoken to AMFI to clarify if the existing MF players need to comply with the new net worth requirement of Rs.150 crore. He; however, believes that the net worth requirement is only for new sponsors especially PE firms.
Such a net worth can be deployed either in cash, money market instruments, government securities, treasury bills, repo on government securities, listed AAA rated debt securities without bespoke structures/structured obligations or credit enhancements/embedded options.
Further, SEBI clarified that PEs wanting to become MF sponsors should have at least 5 years of experience in fund management in the financial services industry along with draw down capital of at least Rs.5000 crore.
As an additional safeguard, SEBI directed PE firms that
- There should be no off-market transactions between MF and its sponsor PE, MF schemes or investee companies having more than 10% stake or board representation or right to nominate a board representation
- A 5-year lock-in on sponsor’s initial shareholding equivalent to capital contributed to an AMC of at least Rs 150 crore
Here are some other norms for MF sponsors:
Self- sponsored AMC
An AMC can become a ‘self- sponsored AMC’, provided it carries business in financial services for a period of at least 5 years and has positive net worth in all immediately preceding five years.
Also, the net profit after depreciation, interest and tax should be at least Rs 10 crore.
Acquisition of AMC
In the case of change in control due to acquisition of shares, a sponsor can borrow to fund this cost provided it has sufficient other assets to back such borrowings.
However, these assets should not include shares of the proposed AMC and the sponsors stake in the said AMC should be free of encumbrances at all time.
Reduction of stake and disassociation of sponsor
A sponsor wanting to disassociate should have been a sponsor for at least 5 years. Post disassociation, all shareholders of such AMC should be classified as financial investors and should hold below 10% stake.
Re-association of sponsor
Dissociated sponsor or any new entity can become sponsor of MF subject to certain conditions. And, in such cases unitholders of the existing scheme should have the option to exit without any load
You can view the circular and its provisions by clicking here.
