The new SEBI headquarters in Mumbai, India. (Photographer: Santosh Verma/Bloomberg)

Private Equity Firms’ Plan To Buy Stake In CAMS, Karvy Computershare Hits A Hurdle   

Stake sale by India’s two largest share registry and transfer agents to private equity firms—General Atlantic and Warburg Pincus—may have hit a hurdle.

That’s because suggestions of a panel set up by the stock market regulator discourage concentration of ownership of such intermediaries—Karvy Computershare Pvt Ltd. and Computer Age Management Services Pvt. Ltd.—in a few hands, according to its report. The committee, headed by Reserve Bank of India’s former Deputy Governor R Gandhi, recommended that they should either have dispersed ownership or should be held by entities regulated by financial sector regulators worldwide. Private equity firms are not regulated by financial sector regulators.

Karvy Computershare and Computer Age Management Services or CAMS service 90 percent of the mutual fund folios. Karvy Computershare also holds shares of 40 percent of listed companies. Such share registry and transfer agencies maintain transaction records of securities.

Two Deals In Jeopardy

  • In August 2017, General Atlantic agreed to acquire 83 percent in Karvy Computershare. The deal would see exit of Australian share registry company Computershare Ltd. and other shareholders, General Atlantic had said in a statement.
  • Great Terrain Investment Ltd., an affiliate of Warburg Pincus, had agreed to acquire 37.5 percent in CAMS. National Stock Exchange of India Ltd., HDFC Ltd. and other shareholders had agreed to sell stake to the private equity firm.

Securities and Exchange Board of India is reviewing both the deals, two people aware of the development told BloombergQuint requesting anonymity. SEBI had sought the view from the panel, which submitted its report on May 19. The regulator is yet to take a call, the people said.

SEBI is yet to respond to emailed queries by BloombergQuint.

In India, Registrar To An Issue And Share Transfer Agents, or RTAs, are owned by individuals, corporate bodies and foreign investors, financial institutions and banks. While there is no restriction on concentration of ownership or lock-in period for promoters, prior SEBI nod is required for change in control and the new owner has to meet the fit and proper criteria. SEBI considers them systemically important institutions, said one of the people cited above.

The Gandhi panel was to review whether certain intermediaries should be classified as market infrastructure institutions. The committee report recommended against concentration of ownership of such agents in a few hands.

Other Suggestions:

  • Regulated entities and those in the business of RTAs may be free to hold ownership up to 100 percent.
  • Entities other than regulated entities cannot own more than 49 percent collectively and 15 percent individually.
  • The ownership requirement may not be applicable if the qualified agent is an in-house entity or performs functions for only one entity.
  • Such intermediaries may be given up to five years to meet this revised ownership structure.
  • Boards should have representation of public interest directors, one-third if the chairman is non-executive and half of the board if the chairman is not a regular non-executive director.