Sebi seeks details on corporate debt investments from fund managers

Securities and Exchange Board of India (Sebi) has asked fund managers to provide extensive details on corporate debt investments, amid growing concern over their ability to sell bonds into an immature stock market, two people familiar with the matter said.

Most fund houses investing in the country hold corporate debt until maturity, but, with the secondary debt market still shallow, complications can arise if they face an unexpected hitch and sudden redemption requests.

Sebi wrote to fund managers after JP Morgan's Indian asset management unit in late August restricted redemptions from two of its debt funds. Both funds suffered significant mark-to-market losses when auto parts maker Amtek Auto Ltd's debt was downgraded by rating agencies.

"SEBI is worried about a similar situation affecting a large number of funds and wants to take some pre-emptive action," said one of the people knowledgeable about the regulator's action.

The regulator has asked funds for details that include the rationale for the purchase, and assessments of a credit downgrade risk, the person said.

Sebi was not immediately available to comment.

The same person, citing discussions with the regulator, said SEBI could also revise guidelines on mark-to-market valuations for funds.

Both of the people familiar with SEBI's moves declined to be identified as the communication from the regulator is private.

SEBI had already asked fund houses to provide details of their exposure to bonds issued by heavily indebted companies, including Amtek as well as steel company Jindal Power and Steel, whose debt was recently downgraded.

Given the lack of secondary trading in India, fund management firms value their portfolios based on data provided by domestic ratings agencies ICRA and CRISIL. This means a downgrade from either can immediately dent the value of debt holdings.