MUMBAI/BENGALURU, Sept 19 (Askume) – India’s markets regulator on Thursday barred investment bank Axis Capital from acting as merchant banker for new debt issuances over alleged violations of rules, according to an interim order posted on the regulator’s website.
This ban will remain in effect until further orders. However, the Securities and Exchange Board of India (SEBI) gave Axis Capital 21 days to defend itself.
According to Sebi, Axis Capital guaranteed the repayment of Rs 2.6 billion ($31.09 million) of bonds issued in March 2021 by Sojo Infotel, a holding company operated by the majority shareholder of Indian mobile phone manufacturing company Lava Group.
However, the company was unable to pay bondholders on redemption in March 2024 and Axis Capital subsequently stepped in to pay the outstanding amount of the outstanding bonds, which is not a permitted activity under existing regulations.
An Axis Capital spokesperson declined to comment. Parent company Axis Bank did not immediately respond to a Askume request for comment.
During its preliminary investigation, SEBI also found that Axis Capital had entered into similar agreements with five other bond issuers.
Sebi said Axis Capital’s guarantee was for “redemption of non-convertible debentures in case of default on maturity” and hence it “cannot be termed as permissible underwriting activity”.
SEBI has sent its findings to the Reserve Bank of India, stating that Axis Capital’s guarantee poses a risk of default by its parent bank Axis Bank.
According to SEBI, Axis Capital has entered the “banking sector” by assuming credit risk instead of market risk.
Under the rules, merchant bankers can take market riskâthey can subscribe for the unsubscribed portion of an issue. However, they cannot take the risk of repayment when the issuer defaults.
SEBI said that Axis Capital should not have entered the banking industry.
(1 USD = 83.6190 Indian Rupees)
