Amid IndusInd Bank Fiasco, Sebi May Delay Hinduja’s Invesco Acquisition

Sebi May Delay Sponsor Approval for Hinduja Group’s Invesco AMC Acquisition Amid IndusInd Bank Probe

The Securities and Exchange Board of India (Sebi) is reportedly considering delaying its approval for the Hinduja Group’s IndusInd International Holdings Limited (IIHL) to acquire a majority stake in Invesco Asset Management (India) Private Limited. This potential postponement comes amid ongoing investigations into IndusInd Bank, a company where IIHL is a significant promoter shareholder.

Highlights:

• Sebi may withhold sponsor approval for IIHL’s 60% stake acquisition in Invesco AMC.

• Investigations into IndusInd Bank’s affairs are a key factor in the delay.

• Sebi seeks clarity on funding sources for the transaction before granting approval.

Funding and Share Pledge Concerns Raised by Sebi

According to sources familiar with the matter, Sebi has sought detailed disclosures from IIHL on the financing of the Invesco AMC buyout. The regulator is particularly interested in whether IIHL will use its own equity or rely on borrowings to fund the deal. Additionally, Sebi has inquired if IIHL has entered any agreements with banks that involve pledging shares of Invesco as collateral, reflecting concerns about potential debt-driven transactions.

Highlights:

• Sebi requested information on whether IIHL will use equity or debt for funding.

• Queries raised about pledging Invesco AMC shares as part of financing.

• Regulator cautious to avoid repeat of Reliance Capital deal where heavy debt and share pledging were involved.

Impact of IndusInd Bank Investigation on Sebi’s Decision

Sebi’s hesitation also stems from the ongoing investigations at IndusInd Bank, where IIHL holds a 12.06% stake, with over one-third of those shares currently pledged. The outcome of these probes is expected to heavily influence Sebi’s final decision on sponsor approval for IIHL. Industry insiders suggest that the regulator is awaiting conclusive results before proceeding.

Highlights:

• IIHL holds 12.06% stake in IndusInd Bank; 35.5% of these shares are pledged.

• Forensic audit and regulatory scrutiny at the bank may delay Sebi’s nod.

• Finality in bank investigations crucial for Sebi’s sponsor approval.

Background on Invesco AMC Deal and Regulatory Process

The Hinduja group’s IndusInd Holdings initially proposed acquiring a 60% stake in Invesco AMC’s Indian operations in April last year. The Competition Commission of India (CCI) cleared the transaction in August 2024, and Sebi reportedly granted in-principle approval later that month. However, the formal sponsor approval, a vital regulatory step allowing IIHL to act as the sponsor of the mutual fund, remains pending.

Highlights:

• CCI approved the deal on August 20, 2024; Sebi gave in-principle nod on August 30, 2024.

• Sponsor approval generally takes 3-6 months post in-principle approval.

• Expected timeline for approval was April 2025, now at risk of delay.

Role and Importance of Sponsor Approval in Asset Management Companies

Sebi defines a sponsor as the individual or corporate entity responsible for establishing and setting up a mutual fund, including the incorporation of the Asset Management Company (AMC) and trustee company under Indian Trust Act, 1961. The sponsor’s approval is essential to ensure regulatory compliance and financial integrity of the AMC. Delays in sponsor approval can stall the overall acquisition and operational control of the mutual fund.

Highlights:

• Sponsor oversees setting up mutual fund, AMC, and trustee company as per Sebi guidelines.

• Approval process critical for regulatory compliance and operational control.

• Delays may affect acquisition timelines and market confidence.