Informist, Thursday, Sep 19, 2024

MUMBAI – The Securities and Exchange Board of India today barred Axis Capital, a registered merchant banker, from taking up new assignments as a merchant banker, arranger, or underwriter for any debt market issue till further orders. The capital market regulator passed an interim order in the matter based on prima facie findings.

Axis Capital is a wholly-owned subsidiary of Axis Bank. SEBI found that Axis Capital breached merchant banking regulations when it provided guarantee or indemnity towards redemption of non-convertible debentures of Sojo Infotel, which had issued debentures of 2.6 bln rupees in March 2021.

When Sojo Infotel failed to redeem the debentures in March this year in its entirety, Axis Capital deposited 1.67 bln rupees in the non-convertible debenture escrow account of Sojo under the pretext of fulfilling its underwriting commitment, SEBI said in its order. This amount was used by Sojo Infotel to repay the outstanding debentures of 1.74 bln rupees. Further, as per the SEBI order, Axis Capital charged a fee of around 330 mln rupees from Sojo Infotel for the entire transaction.

SEBI said that the merchant banking regulations did not permit Axis Capital to go beyond the permitted underwriting activity. Underwriting, in SEBI's view, meant only subscribing to the unsubscribed portion of the securities offered to investors and to dispose of the securities so procured.

SEBI said that its probe, which is still continuing, revealed that the underwriting commitment signed by Axis Capital was worded in such a manner that resulted in a guarantee to repay redemption proceeds to the non-convertible debenture investors of Sojo Infotel.

"The commitment provided by ACL in respect of NCDs of Sojo cannot be termed as an underwriting activity as it was not an agreement to subscribe to or procure subscription for securities, issued or offered for sale, remaining unsubscribed. Rather, it was a guarantee to redeem the NCDs of Sojo in the event of default on maturity," SEBI said in its order. This breached the merchant banking rules, according to SEBI.

The market regulator said that during its probe it also found that Axis Capital had acted as an arranger and undertaken similar activity as in the case of Sojo Infotel for five other unlisted non-convertible debenture issuances.

This included MGM Consulting Services' non-convertible issues of 2.63 bln rupees in March 2022, 1.66 bln rupees in September 2022, and 1.02 bln rupees in January 2023. It also included Day1 Advisors' non-convertible debenture issues of 700 mln rupees in April 2022 and 800 mln rupees in March 2023. SEBI said that Axis Capital charged fees of 500 mln rupees to the two issuer companies for these five non-convertible debenture issues.

SEBI also said that the fees received by Axis Capital were not one-time payment as envisaged in the merchant banking regulations but recurring in nature over the tenure of the non-convertible debentures.

Apart from barring Axis Capital till the ongoing probe is completed and the confirmatory or the final order is passed, SEBI also said it will be referring the matter to the Reserve Bank of India since the guarantee or indemnity provided by the merchant banker to debenture holders also exposed its parent Axis Bank to credit risks. End

Reported by Rajesh Gajra

Edited by Aditya Sakorkar

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

Informist Media Tel +91 (22) 6985-4000

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2024. All rights reserved.