SEBI sends fresh show-cause notices to HDFC MF, Kotak MF

The Securities and Exchange Board of India has sent two more show-cause notices to HDFC Mutual Fund and Kotak Mutual Fund for investments in debt instruments of Essel Group. “We wish to inform you that SEBI has issued 2 (two) additional show-cause notices initiating adjudication proceedings against HDFC Trustee Company Limited , i.e. the trustee company of HDFC Mutual Fund, and our Managing Director, Milind Barve and few other officials of the Company on May 31, 2019 in relation to the same subject matter,” said HDFC A in a notice sent to the exchanges on June 1. Additionally, Business Standard reported that SEBI had also sent show-cause notices to Kotak AMC regarding the same matter. An email response by Kotak AMC to Moneycontrol said that it would not be commenting on the topic. Earlier, SEBI took action against these two fund houses for not fulfilling investor protection norms by delaying the payments due on the fixed maturity plan and for giving loans against shares. Another violation of SEBI norms is said to have taken place in case of FMPs that matured. As per SEBI rules, an FMP must invest in debt securities that mature in line with the FMP. But, by giving an extension to a troubled corporate house a few months ago, the FMPs invariably increased the tenure of those instruments. Both Kotak AMC and HDFC AMC came under SEBI's radar after they were not able to make full repayment to their Fixed Maturity Plan (FMP) investors. In April, Kotak Mutual Fund deferred the full redemption in six fixed maturity plans (FMPs) that held papers of two Essel subsidiaries — Edison’s Utility Works and Konti Infrapower and Multiventures. Kotak Mutual Fund has loaned Rs 3780000000 to Essel Group, on the back of 1.270000000 Zee Group shares as the collateral and personal guarantee from promoters. HDFC MF too announced a 380-day extension of its fixed maturity plan — Series 35 — a close-ended scheme due for maturity on April 15. Most mutual with investments in debt of Essel Group arrived at the standstill arrangement with the promoters. According to the agreement which has received approval from most lenders, promoters have been given time until September 2019 to repay the loans. Further, lenders would not sell the pledged shares of the group companies during this period. As per the data on ACEMF, there are almost 100 schemes that have exposure to the distressed Essel and its group companies.