The Securities & Exchange Board of India (Sebi) is mulling to place restrictions on debt mutual funds from investing in companies which have been notified as wilful defaulters.
This will be part of Sebi’s regulations to check wilful defaulters from accessing capital markets to raise funds, sources told FE. The issue is on the agenda for the Sebi board meeting on March 12.
“After the new regulations, any companies that have been termed as wilful defaulters or companies which are promoted by wilful defaulters will not be able to raise any money through debt mutual funds. Further, after a company is reported as wilful defaulter, funds houses which have exposure to that particular company will have to disclose the size of their exposure to the regulator,” an ex-Sebi official said on condition of anonymity, adding that the restrictions would not be applicable for equity mutual funds.
The initiative comes at a time when debt mutual funds have come under the scanner for offloading their exposures abruptly from the companies whose ratings were downgraded by credit agencies. The recent instance being that of Franklin Templeton Investments which reduced its exposure to Jindal Steel and Power (JSPL). The firm completely sold its of around R1,588.8 in a span of three months. This was after credit agency CRISIL downgraded JSPL’s paper to ‘CRISIL D/CRISIL D’ from ‘CRISIL BB+/CRISIL A4+’; the ratings have been removed from ‘Watch with Negative Implications’.
The JSPL incident comes just a few months after JPMorgan Asset Management had suffered repercussions of downgrades of auto component maker Amtek Auto’s debt instruments.
