SEBI finds Axis Capital disguised guarantee for Sojo Infotel NCDs

Who it concerns: Axis Capital Limited (Noticee), Sojo Infotel Pvt. Ltd. (Issuer), Axis Trustee Services Ltd. (Trustee), Lava International Ltd. (whose shares were pledged), and investors including Aditya Birla Finance Private Ltd., Sun TV Network Ltd., and Shriram Foundry Private Ltd.

What SEBI found or ordered

• SEBI found that Axis Capital's 'underwriting commitment' for pledged shares was actually a guarantee for redeeming debt instruments, which is not permitted under the SEBI (Merchant Bankers) Regulations, 1992.
• The arrangement involved INR 260 crore in NCDs issued by Sojo Infotel, secured by a 26% pledge of shares in Lava International Ltd.
• Axis Capital deposited INR 166.84 crore into an escrow account to repay outstanding NCDs and interest after Sojo failed to fully honor its call option.
• SEBI noted that Axis Capital charged a fee of approximately INR 33 crore, calculated based on the yield difference, indicating it bore credit risk rather than just arranging a sale.
• The Designated Authority recommended a regulatory censure against Axis Capital Limited under Regulation 26(1)(vii) of the SEBI (Intermediaries) Regulations, 2008.

Also in the document

• SEBI observed that credit rating agencies (CRISIL) and investors placed heavy emphasis on Axis Capital's commitment as the main strength behind their investment decisions.
• The order notes that Axis Capital classified the acquired shares as 'securities held for trading' in its financial statements for the year ended March 31, 2024.
• The matter arose from a SEBI inspection conducted on March 13, 2024, covering the period from January 1, 2013, to December 31, 2024.