Sebi plans to tighten rules on MF redemptions after JPMorgan restricted payouts from its two funds when a string of investors demanded their money back
We’re going to make some changes in our regulations for funds capping repurchases, U. K. Sinha, chairman, Sebi said
New York/Mumbai: Stock market regulator Securities and Exchange Board of India (Sebi) plans to tighten rules on mutual fund redemptions after JPMorgan Chase and Co. in September restricted payouts from its two local funds carrying bonds of Amtek Auto Ltd after a string of investors demanded their money back.
“We’re going to make some changes in our regulations for funds capping repurchases,” U. K. Sinha, chairman, Sebi said in an interview at his office in Mumbai. “We’re going to fine tune them further—what situation can you do it and for how many days and up to what level.”
Amtek Auto, the New Delhi-based supplier of parts to auto makers such as Ford Motor Co. and Maruti Suzuki India Ltd, roiled creditors after a local rating agency slashed its credit score by four levels in one stroke in August. That led to an erosion in the net asset value of JPMorgan’s India treasury fund and India short term income fund, prompting the money manager to cap repurchases at 1% of total outstanding units.
The company saw its bonds score cut to C by Brickwork Ratings India Pvt. The agency on 7 October lowered it further to default, citing coupon delays. The regulator may order rating companies to explain the reasons before suspending ratings, Sinha said.
“We are looking at what are the situations where you can suspend ratings, and how to convey that message to the market transparently,” he said. “Sudden withdrawal of ratings don’t convey anything to bondholders.” Bloomberg
JPMorgan in September sought approval from investors in the two funds to separate the troubled debt from other investments, a move that would help it lift the restrictions on redemptions. Amtek Auto’s bond, which matured later that month, was the biggest holding in the Short Term Income Fund, making up 15% of assets on 31 July, data compiled by Bloomberg show. The security was among the top 10 holdings of India treasury fund.
Selling Units
Amtek’s shares slumped a record 72% in the September quarter after the company said it’s facing a “temporary cash flow mismatch” due to declining sales and narrowing profit margins. The company has received a lot of interest for the minority holdings in overseas units that it put up for sale to raise funds and cut debt, John Flintham, senior managing director, said in an interview with Bloomberg TV India on Tuesday. The stock surged 14% that day. It climbed 1.1% at 9:26am in Mumbai on Thursday
Source of News : LiveMint – Dated : 5thNovember, 2015
Airticleby :John MicklethwaitSantanu Chakraborty