India markets regulator bars Axis Capital from acting as banker for new debt issues
MUMBAI/BENGALURU (Reuters) -India's markets regulator on Thursday barred investment bank Axis Capital from acting as a merchant banker for new debt issues for allegedly violating rules, according to an interim order on the regulator's website.
The ban will remain in effect till further orders. However, the Securities and Exchange Board of India (SEBI) has granted Axis Capital 21 days to present its defence.
According to SEBI, Axis Capital provided a repayment guarantee to bonds worth 2.6 billion rupees ($31.09 million) issued by Sojo Infotel, a holding company floated by the majority shareholders of Indian phone manufacturing firm Lava Group, in March 2021.
However, the company was unable to pay the bondholders at the time of redemption in March 2024, with Axis Capital stepping in to pay the dues on outstanding bonds, which is not a permitted activity under existing regulations.
Parent company Axis Bank said Axis Capital is of the view that activities in debt segment were in compliance with regulations.
Axis Capital will continue to operate in all other segments including equity capital markets, the bank said in an exchange filing late on Thursday.
SEBI has not passed any order against Axis Bank and the order will have no material impact on its financials, the bank said.
In the course of its preliminary investigations, SEBI also found similar agreements made by Axis Capital with five other bond issuers.
Axis Capital's guarantee was to "redeem the non-convertible debentures in the event of default on maturity", said SEBI, and so it could not be "termed as permitted underwriting activity".
SEBI has sent the findings of the investigation to India's central bank, saying that Axis Capital's guarantee exposed its parent Axis Bank to the risk of default.
According to SEBI, Axis Capital was taking credit risk exposure, rather than market risk, thereby entering the 'realm of banking'.
Under regulations, merchant bankers are allowed to take market risk - they can subscribe to the unsubscribed portion of the issue. However, they are not permitted to take on the risk of repayment when an issuer defaults.
Axis Capital should not have ventured into the banking space in the first place, SEBI said.
($1 = 83.6190 Indian rupees)
(Reporting by Jayshree P Upadhyay in Mumbai, Hritam Mukherjee and Dimpal Gulwani in Bengaluru; Editing by Janane Venkatraman and Mrigank Dhaniwala)