Sebi bars Axis Capital from appearing as debt service provider banker until additional orders

The Securities and Alternate Board of India (Sebi) on Thursday restrained Axis Capital Ltd (ACL) from taking on new assignments as a debt service provider banker until additional orders.

The Sebi’s interim order got here amid allegations of ACL extending itself past the permissible actions as a service provider banker whereas coping with the problem of listed non-convertible debentures (NCDs) of Sojo Infotel. 

Sebi famous that ACL supplied assure/indemnity in direction of redemption of NCDs within the guise of underwriting, which it was not permitted to do below the present regulatory framework. Such exercise posed a threat to the monetary system because it may doubtlessly disrupt the orderly functioning of the market.

“It was thus famous that within the prompt case, ACL went past the mandate of subject administration, because the exercise undertaken by ACL was in contravention of the definition of underwriting and position of service provider banker as outlined in MB Rules, 1992,” Sebi famous in its order.

“There’s a potential threat of ACL persevering with to undertake actions as a registered service provider banker past the realm of permitted actions. As an interim measure pending inspection of ACL by Sebi, hereby restrain ACL from taking on new assignments within the capability of a service provider banker, arranger or underwriter for any subject / supply on the market of securities within the debt phase, until additional order,” the order, authored by complete time member Ashwani Bhatia, mentioned.

Sebi initiated motion into ACL after publication of a report titled ‘Is Axis Capital an Funding Financial institution or a Hedge Fund?’ authored by a analysis analyst. The regulator was inspecting the transaction undertaken by ACL in respect of listed NCDs of Sojo Infotel Pvt. Ltd, a excessive know-how consultancy service supplier.

The info behind the matter

The matter arose when Sojo issued NCDs value ₹260 crore in March 2021 with Axis Debenture Trustee Companies because the trustee and ACL because the arranger of the problem.

ACL had given underwriting dedication for the NCDs, which was factored by Crisil whereas giving its scores.

The NCDs had been listed on BSE with a coupon charge of ₹8.48% each year payable quarterly. The redemption date was 25 March 2024.

Sojo utilized the funds raised by means of the NCDs to buy shares of Lava Worldwide Ltd (LIL) from Unic Reminiscence Know-how Hong Kong and for subscribing to a rights subject of LIL. The deliberate reimbursement of NCDs of Sojo was by means of promoting LIL shares throughout IPO or pre-IPO. Accordingly, a draft pink herring prospectus (DRHP) of LIL was filed after 6 months of issuance of NCDs and ACL was the lead managers of the IPO.

Sebi returned the DRHP, advising LIL to file a revised DRHP.

On 13 September, Sojo issued the decision possibility train discover however did not redeem the remaining NCDs in entirety. The excellent NCDs received lowered to ₹174 crore, plus curiosity.

In October 2023, Axis Debenture Trustee invoked pledge over 26 % shares of LIL held by its promoters, which had been pledged by the promoters of Sojo as safety cowl for NCDs issued by Sojo. As ACL was unable to discover a purchaser for the pledged shares, it led to triggering of asset buy occasion on 15 March 2024, which required ACL to fulfil its “underwriting dedication”.

On 19 March 2024, ACL fulfilled its “underwriting dedication” by depositing Rs.166.84 crore within the NCD escrow account of Sojo. The mentioned quantity together with the quantities already mendacity within the escrow account was utilised to totally repay excellent NCDs of 174 crore plus curiosity. 

ACL has been directed to answer inside 21 days.

“Whereas ACL needed to bear the price of its transgressions within the type of fulfilling its indemnity obligations by making funds for redemption of NCDs, ACL shouldn’t have ventured into the banking area within the first place, that risked its credit score profile,” the order mentioned.