SEBI Bars Axis Capital From Debt Merchant Banking

The Securities and Exchange Board of India on Thursday has barred Axis Capital Ltd. from debt merchant banking activities due to unpermitted guarantees for non-convertible debentures of Sojo Infotel Pvt Ltd., posing risks to market integrity and investors.

The regulatory action followed a report by SEBI-registered analyst Hemindra Kishen Hazari highlighting concerns about Axis Capital's high-risk transactions.

SEBI observed that Axis Capital's involvement in Sojo Infotel's transaction resembled a banking operation, exposing the company to credit risk. By fulfilling its indemnity obligations, The investment banker incurred costs that could impact its credit profile.

The investment banking unit of Axis Bank Ltd. provided guarantees for non-convertible debentures, disguised as underwriting, which is not permitted, SEBI said in its order.

This activity, according to the markets regulator, has the potential to disrupt market integrity and mislead investors. The credit rating agencies viewed Axis Capital's guarantees as credit enhancements, affecting ratings and investor decisions, the order said.

SEBI also raised concerns about Axis Capital's fee structure, stating that the company's fees were structured as ongoing payments instead of one-time underwriting fees, indicating continuous credit support.

As Axis Capital is a wholly-owned subsidiary of Axis Bank, the Reserve Bank of India may need to investigate potential credit risks posed to the parent bank, the order stated.