New Delhi: Fairfax Financial Holdings (FFHL), a company owned by Prem Watsa, is attempting to reach a consent settlement with market regulator Securities and Exchange Board of India (Sebi) regarding an alleged violation of mutual fund cross-holding regulations.
The consent mechanism enables a suspected wrongdoer to resolve a pending dispute with Sebi by paying a fine, going through a market ban, or doing both, without admitting or denying guilt. By taking this path, you can avoid spending time and money on protracted legal proceedings.
“FFHL had filed a settlement application dated June 3, 2022 with Sebi under the Sebi (Settlement Proceedings) Regulation, 2018. An adverse ruling by Sebi in this regard against FFHL could adversely affect our promoters and our company, especially an order which could consequently impair our company’s ability to undertake this offer or raise further capital via certain modes,” GO Digit General Insurance said in its draft offer document filed with Sebi on August 17.
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One of the promoters of the IPO-bound GO Digit is Canadian billionaire Prem Watsa's business.
A single entity is not permitted to hold more than a 10% investment in more than one asset management company under Sebi's cross-holding regulations (AMC). FFHL partner company owns a roughly 49% share in Quantum AMC. Due to its ownership of the parent company IIFL Wealth, FFHL also indirectly owns more than 10% of IIFL AMC.
Over three years prior, the problem first came to light. The ultimate parent company of the Fairfax Group, FFHL, received a show cause letter from Sebi in October 2021, citing a violation of Regulation 7B of the SEBI (Mutual Funds) Regulations, 1996.
“The show cause notice, which was replied to on December 22, 2021, alleges, amongst other things, that: (i) FFHL indirectly holds over 10 per cent voting rights in an asset management company and trustee company of one mutual fund, while being an ‘associate’ of the sponsor of another mutual fund; and (ii) FFHL indirectly holds over 10 per cent of the voting rights in the asset management company and trustee company of more than one mutual fund,” the company has disclosed in GO Digit’s IPO document.
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The business has additionally revealed that, subject to regulatory approvals, the Fairfax Group-owned FIH Mauritius has entered into a legally binding agreement for the sale of a portion of its investment in IIFL Wealth Management, the sponsor of IIFL AMC and IIFL Trustee Limited.
Bain Capital, a key player in private equity (PE), and General Atlantic, as well as Prem Watsa-owned FIH Mauritius, reached an agreement for Bain Capital to buy a 24.98% equity position in IIFL Wealth Management in March 2022.
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