American investment firm Invesco raised the exposure of its global fund in Reliance Industries Limited during the months it was facilitating a potential merger between Zee Entertainment Enterprises and Reliance’s media ventures.

According to Invesco’s financial reports, the American investment fund increased its holdings in RIL from 74,76,209 shares on January 31, 2021, with a total value of ₹1,413 crore to 97,19,251 shares valued at ₹1,957 crore by April 30, 2021.

Meanwhile, in February, Aroon Balani and Bhavtosh Vajpayee, representatives from Invesco Developing Markets Fund, approached Zee promoter Punit Goenka with a potential merger deal with Reliance. Reliance later dropped the merger plan as differences arose between Invesco and Goenka. Corporate governance experts are, however, wary of treating this as an act of insider trading.

JN Gupta, Managing Director at Stakeholders Empowerment Services, a corporate advisory firm, told BusinessLine : “By being a facilitator in the merger discussion between Zee and Reliance’s media properties, Invesco does become an insider as per insider trading regulation. However, whether increasing their shareholding into RIL in February-April is an act of insider trading still remains uncertain.”

According to Gupta, Invesco is a global fund with different departments overseeing different operations. It could be that, as per regulations, Invesco would have created a so-called Chinese wall between its department dealing with the merger and the department further investing into RIL. “We don’t know what exactly happened, whether Invesco took any precautions to ensure they were complying with regulations,” Gupta continued. “Now that the matter is in public domain, SEBI is well within its rights, and has jurisdiction to investigate the matter,” said Gupta.

S Subramanian, MD of InGovern Research Services, a corporate governance advisory firm, said: “Though Invesco acted as a facilitator between Reliance and Zee, it may be a stretch to consider it as being in possession of Unpublished Price Sensitive Information. Additionally, the benefits accrued from the proposed merger may, at best, have been marginal, if any, given that the media business would not significantly move the needle for the Reliance stock price and in turn the Invesco holdings.”

Misuse of information

Earlier this month, BusinessLine reported that market regulator SEBI had asked Invesco Developing Markets Fund to explain its role in trying to take the proposal of RIL to Zee’s promoter family.

The regulator is concerned if there was unpublished price-sensitive information that was misused and also violation of public disclosure norms, sources said.

Zee has also written to SEBI, where the board of the company has sought an investigation against Invesco for ‘motivated’ disclosure about RIL’s interest in Zee.

Invesco did not respond to an e-mail sent on Tuesday seeking comment.

Amit Tandon, Founder and MD of Institutional Investor Advisory Services, observed that the matter needs to be further explored. However, it is important to ascertain which fund increased its shareholdings in RIL.

“Invesco has multiple funds. In case it was the fund which owns Zee and approached Zee promoters with a potential merger with Reliance media properties, then this is indeed a matter requiring SEBI scrutiny,” said Tandon.

SEBI probe

However, according to Tandon, if this fund is a foreign fund that sought to invest in emerging markets like India, SEBI might not even have the jurisdiction to investigate.

This could also be one of Invesco’s index funds increasing shareholding in RIL, in which case it is a non-issue according to Tandon since they are compelled to do so.

“Usually, these funds are wary to be privy to company information, which is not accessible to the public since then they will be unable to buy and sell company stock which they will not want.” Tandon added.

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