Violation of cross-holding standards: Fairfax seeks consent settlement with Sebi
Fairfax Financial Holdings (FFHL), owned by Prem Watsa, is seeking to settle the alleged violation of mutual fund cross-holding standards with market regulator Securities and Exchange Board of India (Sebi) through consent.
The consent mechanism allows an alleged violator to settle an outstanding matter with Sebi without admitting or denying guilt by paying a fine or incurring a market ban or both. This route saves the time and money that lengthy litigation processes might require.
“FFHL had filed a claim for settlement dated June 3, 2022 with Sebi under the Sebi Settlement Proceedings, 2018. An adverse ruling by Sebi in this regard against FFHL could harm our promoters and our company, in particular an order which could consequently impair our company’s ability to undertake this offering or raise additional capital through certain modes,” said GO Digit General Insurance in its draft offer document filed with Sebi on 17 august.
The company of Canadian billionaire Prem Watsa is one of the promoters of the IPO of GO Digit.
According to Sebi cross-holding standards, a single entity is not allowed to own more than 10% of the capital of more than one asset management company (AMC). An associated company of FFHL owns approximately 49% of the capital of Quantum AMC. Meanwhile, FFHL also indirectly owns more than 10% of IIFL AMC’s equity through its stake in parent company IIFL Wealth.
The problem had been revealed more than three years ago. In October 2021, Sebi had issued a show cause notice to FFHL, which is the ultimate parent company of the Fairfax Group, alleging a breach of Regulation 7B of the SEBI (Mutual Funds) Regulations, 1996.
“The show cause notice, which was responded to on December 22, 2021, alleges, among other things, that: (i) FFHL indirectly owns more than 10% of the voting rights in an asset management company and a trust company of a mutual fund, while being an “associate” of the promoter of another mutual fund; and (ii) FFHL indirectly owns more than 10% of the voting rights in the asset management company and the trust company of more than one mutual fund,” the company revealed in the IPO document. by GO Digit.
The company further disclosed that FIH Mauritius, owned by the Fairfax Group, has entered into a binding agreement for the sale of certain of its stakes in IIFL Wealth Management, the sponsor of IIFL AMC and IIFL Trustee Limited, subject to regulatory approvals.
In March 2022, leading private equity (PE) firm Bain Capital agreed to acquire a 24.98% stake in IIFL Wealth Management from fellow private equity firm General Atlantic and FIH Mauritius, owned by Prem Watsa.