Sebi holds back much-awaited Rs 35-billion HDFC Mutual Fund IPO

Says it is examining past rule violations by the asset manager

The Securities and Exchange Board of India (Sebi) has put the much-awaited initial public offer (IPO) of equity from HDFC Mutual Fund on hold. 
 

The processing status for IPOs on Sebi’s website states this one is being “kept in abeyance for examination of past violations”. On April 26, the markets regulator sent a letter to investment banks handling the IPO, seeking clarifications.

Those in the sector say Sebi keeps an IPO in abeyance only for violations of a serious nature or such that these would take time to resolve. Beside HDFC MF, those of Srei Equipment Finance and Vishwaraj Sugar Industries — filed last year with Sebi—have been kept in abeyance. 

HDFC MF had filed its offer document with Sebi on March 15. “Sebi takes about six weeks to clear an IPO if everything is in place. If the IPO goes on hold on regulatory grounds, the process can get delayed by a few months, till the issue is resolved,” said an investment banker, asking not to be named.

Sebi has not made public the exact nature of the violations. The offer document with Sebi mentions pending proceedings on breach of the rules on securities. “We (promoters, directors and group companies) are also involved in an investigation initiated by Sebi with regard to alleged front-running and violation of securities laws,” it states. Past serious charges against the fund house include a case of “front-running” by its equities dealer, Nilesh Kapadia. Sebi passed orders in the matter in July 2014 and January 2016. In the former order, Sebi had barred Kapadia and others accused  from accessing the securities market for 10 years. In the interim order dated January 2016, Sebi had ordered impounding of unlawful gains allegedly made by Kapadia and other front-runners.

Sebi, however, had not issued directions to the fund house, trustee company or the managing director.

In March 2016, HDFC MF had deposited money to cover losses suffered by investors during the period November 2001 to September 2007, aggregating to Rs 70 million, as determined by Sebi. In a segregated bank account, the offer document states. Further, that Sebi had “dropped” a show cause notice of March 2014 after the fund house compensated investors as directed by the regulator.

What went wrong

• Beside HDFC MF, those of Srei Equipment Finance and Vishwaraj Sugar Industries — filed last year with Sebi—have been kept in abeyance
• HDFC MF had filed its offer document with Sebi on March 15
• Past serious charges against the fund house include a case of “front-running” by its equities dealer, Nilesh Kapadia
• HDFC MF was hoping to launch its ~35-billion IPO before the end of the current quarter

An e-mail sent to HDFC MF, asking for the nature of violations cited by Sebi did not elicit a response.

HDFC MF was hoping to launch its Rs 35-billion IPO before the end of the current quarter. This could now get delayed to the next quarter, said sources. This IPO by the country’s second largest fund house is entirely an offer for sale by parent Housing Development Finance Corporation (HDFC) and Standard Life Investments, which hold 57 per cent stake and 38 per cent, respectively.

HDFC and Standard Life are looking to divest four per cent and eight per cent, respectively.