SEBI puts BNP in a spot over MF operations

 
MUMBAI:March 4,2010

Nishanth Vasudevan

The Securities and Exchange Board of India (SEBI)
has asked France-based financial services major BNP Paribas
for details on how it intends to continue its

mutual fund (MF) business in India.

The market regulator is learnt to have set a deadline for BNP,
 which owns Fortis Mutual Fund and also holds a stake in Sundaram
BNP Paribas Asset Management, to choose either or merge the two,
 as regulations prohibit an entity from having stakes in two
Indian asset management companies.


An email questionnaire and SMS query on this matter to BNP’s
corporate communications official did not elicit a response.

BNP Paribas finds itself in this tricky situation following
the French bank’s acquisition last year of Belgium-based Fortis
Bank’s various international operations, which included the Indian
 MF operations. The bank already held 49.9% stake in an asset
 management joint venture with Chennai-based Sundaram Finance
known as Sundaram BNP Paribas Asset Management since 2005.

A person privy to the matter said BNP is in a fix on whether
it should sell off its stake in the joint venture with Sundaram
 or push for a merger of Sundaram BNP Paribas Asset Management with Fortis.

Though the exact details of the Sundaram-BNP Paribas joint venture
is not known, it is speculated that BNP may have to make a severance
compensation to Sundaram, if it plans to exit the venture.
This could not be verified with either of the parties.

A merger with Fortis would require consent from Sundaram,
which is believed to be keen on being a part of MF business here,
but does not want to pump in more money into the venture,
the person said. “A merger between the two entities could
result in Sundaram’s stake in the MF business coming down,
unless it wants to invest fresh money,” he added.

Sundaram BNP Paribas Asset Management managed assets worth
 Rs 13,732 crore as on February 28, 2010.
Fortis Mutual Fund managed assets worth Rs 9,108 crore
as on February 28, 2010. Industry officials feel a merger
 would be beneficial to both entities, as Fortis’ assets
 under management is predominantly debt,
while Sundaram BNP Paribas is considered strong in equities.



Also, the industry’s business has slowed down considerably
 after SEBI’s move last year to restrict distributor commission,
creating a favourable environment for mergers among
India’s MFs to remain profitable.