Pirmal-Abbott deal: Testing ground for SEBI's order to MFs

Excerpts from Midcap Radar on CNBC-TV18 Watch the full show » Nifty BSE | NSE 29/05/12 Are Mutual Funds betting on Nifty?

Its time to test if market regulator's mandate to mutual funds to play an active role in the corporate governance of the companies they invest in is falling in place or not. Around 17 mutual funds will have to cast their vote on the Pirmal Healthcare deal with Abbott. CNBC-TV18's Priyal Guliani reports.

The Securities and Exchange Board of India (SEBI) in its statement on March 15, 2010, made it mandatory for mutual funds to play an active role in the corporate governance of the companies that they invest in. They were asked to disclose policies and procedures to exercise voting, and the asset management company (AMC) board has to formulate these voting rights based on the kind of exposure that they have. It also asked mutual fund houses to disclose the same in the annual report and the website of the AMC.

With regard to the Piramal Healthcare formulation business, which it is planning to sell to Abbott, is where the true testing would take place.

A total of 17 mutual funds, including Reliance, Magnum, DSP, JM and ICICI, have invested Rs 338.82 crore in the Indian healthcare major. The company has sought shareholders' approval via a postal ballot for which MFs will have to give their voting rights, the decision of which would be out of June 25.

Issues surround

The decision of MFs unlikely to be disclosed for next one year till the company's annual report is released, as per SEBI's guideline. Also the minority shareholders cannot rely on MFs decisions for voting purposes

Another issue that needs to be addressed is that many MFs are yet to formulate policy on voting rights.