InvestorQ : What are the standstill agreements that mutual funds seem to have signed with the Zee group and why is it getting so controversial?
Anu Biswas made post

What are the standstill agreements that mutual funds seem to have signed with the Zee group and why is it getting so controversial?

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Priyanka N answered.
2 years ago
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You are right that of late, SEBI has been raising a lot of questions to MFs on standstill agreements. In fact, SEBI had come down heavily on standstill agreements signed between mutual funds and borrowers and more so when the Zee group recently asked for an extension of the standstill agreement by another 6 months. SEBI’s view is that, there was no provision in the SEBI MF regulations for such standstill agreements and asked mutual funds to make appropriate disclosures and provisions. For the regulator it is more a matter of making mutual fund managers more accountable and about protecting the interests of the small investors in mutual funds.

The controversy was with specific reference to Mr. Subhash Chandra asking for an extension of the standstill agreement with select mutual funds. These MFs, through their FMP schemes, had bought into bonds issued by Essel group companies. As added surety, the promoter had also offered his personal shares as pledge. As a result, this was more of loan against shares and SEBI felt that MFs were acting like lending banks without the accountability and disclosure of banks. SEBI was right when it questioned about the legitimacy of the standstill agreements as subsequently, the promoters of ZEE group could not honour the standstill agreement as on September 30th. Eventually, they asked for another extension of the standstill agreement till March 31st. Funds like HDFC and Birla have agreed to this extension while Kotak has not. Mr. Tyagi has expressed unhappiness about the opacity and underlined that such agreements were outside the purview of SEBI. This is why the standstill agreements are back on the discussion table.

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