Breach of cross-holding norms: Fairfax seeks consent settlement with Sebi

Canadian billionaire Prem Watsa's firm holds over 10% stake in two AMCs

Canadian billionaire Prem Watsa-owned Fairfax Financial Holdings (FFHL) is looking to settle the alleged breach of mutual fund (MF) cross-holding norms with markets regulator Securities and Exchange Board of India (Sebi) via the consent route.

The consent mechanism allows an alleged wrongdoer to settle a pending matter with Sebi without admitting to or denying the guilt by paying a penalty or undergoing a market ban or both. 

This route helps save both time and money that a lengthy litigation process might otherwise entail.

“FFHL had filed a settlement application dated June 3, 2022, with Sebi under the Sebi (Settlement Proceedings) Regulations, 2018. An adverse ruling by Sebi in this regard against FFHL could adversely affect our promoters and our company, especially an order which could consequently impair our company’s ability to undertake this offer or raise further capital via certain modes,” Go Digit General Insurance had said in its draft offer document filed with Sebi on August 17.

Watsa’s firm is one of the promoters of IPO-bound Go Digit.

Under Sebi’s cross-holding norms, a single entity isn’t allowed to hold over 10 per cent stake in more than one asset management company (AMC). An associate company of FFHL holds about 49 per cent stake in Quantum AMC. Meanwhile, FFHL also indirectly holds more than 10 per cent stake in IIFL AMC, thanks to its holding in parent firm IIFL Wealth Management (IIFL Wealth).

The issue came to light over three years ago. In October 2021, Sebi had issued a show cause notice to FFHL — the ultimate parent firm of Fairfax Group — alleging violation of Regulation 7B of the Sebi (MFs) Regulations, 1996.

“The show cause notice, which was replied to on December 22, 2021, alleges, amongst other things, that: (i) FFHL indirectly holds over 10 per cent voting rights in an AMC and trustee company of one MF, while being an ‘associate’ of the sponsor of another MF; and (ii) FFHL indirectly holds over 10 per cent of the voting rights in the AMC and trustee company of more than one MF,” the company has disclosed in Go Digit’s initial public offering document.

The company has further disclosed that Fairfax Group-owned FIH Mauritius has entered into a binding agreement for sale of certain of its shareholding in IIFL Wealth, the sponsor of IIFL AMC and IIFL Trustee, subject to regulatory approvals.

In March, private equity (PE) major Bain Capital agreed to acquire a 24.98 per cent equity stake in IIFL Wealth from another PE firm General Atlantic and Watsa-owned FIH Mauritius.