Larsen & Toubro Ltd (L&T) has received an 'in-principle' approval from the Securities and Exchange Board of India (Sebi) to set up an asset management company (AMC).
According to the application filed in July with the capital markets regulator, L&T Finance, the non-banking finance company (NBFC) subsidiary of the cement and construction giant, will be the sponsor of the mutual fund.
Sebi sources said that the approval is only for setting up the AMC and the company will have to intimate its compliance to Sebi in setting up the AMC and the board of trustees for running the company.
"After completing all the formalities they can get the final clearance from us for floating mutual fund schemes," sources said. Actual operations are expected to start only around March 2002.
As a sponsor, L&T Finance will be required to contribute only 40 per cent (Rs 4 crore) out of the minimum paid-up capital of Rs 10 crore for setting up the AMC.
However, pending scouting for a strategic partner, the NBFC may subscribe to the entire capital, sources familiar with the details said.
With the money and government securities markets funds being the star attractions in the mutual fund market, the AMC is expected to kick-off its operations with these schemes and equity schemes will be launched only at a later date when the capital markets stabilise.
The formalities that L&T Finance as a sponsor of the AMC will need to fulfill include, executing the trust deed and investment management agreement, setting up a trustee company/board of trustees comprising two-third of independent trustees, incorporating the AMC, contributing to at least 40 per cent of the net worth of the AMC and appointing a custodian.
The move to foray into the mutual funds sector is in line with Boston Consulting Group's recommendations that L&T should strengthen its presence in the financial services sector. In addition to the NBFC, L&T also has a merchant banking arm.
According to market sources, though Grasim has taken a 10 per cent stake in L&T and the Birlas have their own mutual fund (Birla SunLife), they (the Birlas) are not expected to oppose the setting up of the mutual fund in view of the L&T brand power and expertise it has in managing investments the debt and equity markets.
Sebi grants registration to a sponsor to float an AMC only if it has a 'sound track record'. This means it should be carrying on the business in the financial services sector for not less than five years, should have a positive net worth in all the immediate preceding five years, net worth in the immediate preceding year should be more than the capital contribution of the sponsor in the AMC and the sponsor has profits after providing for depreciation, interest and tax in three out of the immediately preceding five years, including the fifth year.
