Markets regulator Sebi on Tuesday imposed a penalty of Rs 50 lakh each on two promoter entities of Yes Bank for not making requisite disclosures pertaining to encumbrance of shares. The two entities that have been penalised are Yes Capital (India) and Morgan Credits.
It was alleged that by not making requisite disclosures of encumbrances of shares of Yes Bank to the stock exchanges and the lender, the two promoter entities have violated the provisions of SAST (Substantial Acquisition of Shares and Takeover ) Regulations.
Yes Capital had raised Rs 630 crore from Franklin Templeton Mutual Fund through unlisted Zero Coupon Non-Convertible Debentures ('ZCNCD') in September 2017. As a part of the transaction, Yes Capital acceded to a condition that it will maintain a cover ratio of 3.3 times till 12 months and 3 times thereafter.
Besides, Morgan Credits had raised Rs 950 crore from Reliance Mutual Fund through unlisted ZCNCD in April 2018 and as a part of the transaction, Morgan Credits acceded to a condition that it will always maintain a cap on the borrowing cap at 0.5 times.
As per the shareholding pattern of Yes Bank filed with the stock exchanges as on March 31, 2019, Yes Capital and Morgan Credits held 3.27 per cent and 3.03 per cent stake, respectively in the private lender.
Based on the observations, Sebi examined whether the conditions of maintaining a 'Cover ratio' or 'Borrowing cap' as part of borrowings by these promoters can be construed as a form of 'encumbrance' on shares of the bank.
In its submission to Sebi in March 2019, Yes Bank had said that it was not privy to the transactions entered into by Yes Capital and Morgan Credit and it has not received any disclosure from them both about any encumbrance on their shareholding in the bank.
Further, stock exchanges — BSE and NSE —in February 2019 had stated that no disclosures were made to them with respect to these transactions.
Sebi found that the “transactions carried out by the noticee (Yes Capital and Morgan Credits) by way of raising funds through unlisted ZCNCD with the conditions of maintaining a 'Cover ratio / 'Borrowing Cap' as part of borrowings is construed as a form of 'encumbrance' on the underlying shares of YBL (Yes Bank Ltd) held by noticees and that by not making requisite disclosures of the said encumbrances on shares of YBL held by them to stock exchanges and YBL, the noticees have violated the provisions of ...the SAST Regulations”.
Accordingly, the Securities and Exchange Board of India (Sebi) has levied a fine of Rs 50 lakh each on Yes Capital and Morgan Credits.
SAST Regulations require a promoter to disclose encumbrance of its shares and the term 'encumbrance' include a pledge, lien or any such transaction, by whatever name called.
Further, through the frequently asked questions (FAQs), it has also been clarified by Sebi that non-disposal undertakings are also included in such disclosure.