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Vodafone crisis spills over into mutual fund schemes

By Jash Kriplani
January 19, 2020 10:17 IST

Experts say the impact on the schemes’ NAVs may vary in the coming days, depending upon how fund houses treat the developments on VIL and whether there are any further rating downgrades or credit events.

Illustration: Dominic Xavier/Rediff.com.

The insolvency risks facing Vodafone Idea (VIL) because of the AGR (adjusted gross revenues) dues spilled over to more mutual fund (MF) schemes on Friday, with the exposed schemes seeing 4-10 per cent dip in net asset values (NAVs) on the back of valuations provided by rating agencies.

Overall, the MF industry’s debt exposure to VIL stood at Rs 3,389 crore as on December 31, 2019, spread across 45 schemes, showed data from Value Research.

UTI Credit Risk Fund, which had 17 per cent of scheme assets exposed to debt papers of VIL, saw 10.42 per cent dip in its NAV. UTI Bond Fund (8.32 per cent exposure) saw 4.15 per cent mark-to-market (MTM) impact on its NAV.

 

In a note, UTI MF said, “Given the above uncertainties and to protect the interest of unitholders, UTI AMC (asset management company) has decided to value the non-convertible debentures (NCDs) of Vodafone Idea at the lower of the two prices provided by the valuation agencies with effect from January 17, 2020.”

The note added that UTI AMC would review the valuations based on future developments and keep the investors informed.

The two close-end fixed maturity plans (FMPs) of UTI MF -- Series XXX-IX (1,266 days) and Series XXVII-II (1,161 days) -- also saw 3.08 per cent and 1.7 per cent impact, respectively, on NAVs. Overall, UTI MF had Rs 557 crore of exposure to debt papers of VIL.

The other schemes that felt the pinch on Friday belonged to Nippon India MF and Birla Sun Life MF. Nippon India Hybrid Fund, which had 7.42 per cent of scheme exposure to VIL’s debt paper, saw its NAV dip by 3.83 per cent. The NAVs of the 13 FMPs of Nippon India MF (which had a combined exposure of Rs 64.37 crore) saw an MTM impact of 2-4 per cent. Overall, Nippon India MF had debt exposure of Rs 243 crore to VIL.

Aditya Birla MF, which had Rs 514 crore of debt exposure to VIL, didn’t see any major impact in four of its schemes that hold VIL debt exposure. The MTM impact ranged from 1 per cent to below 1 per cent.

Experts say the impact on the schemes’ NAVs may vary in the coming days, depending upon how fund houses treat the developments on VIL and whether there are any further rating downgrades or credit events.

“The MTM impact has come after the valuations provided by the rating agencies. However, some may decide to value it in conservative terms and some fund house may take a different approach,” said a fund manager, requesting anonymity.

Franklin Templeton MF decided to markdown its debt exposure to VIL to zero on Thursday itself, the day the Supreme Court (SC) rejected the review plea of VIL on AGR dues amounting to Rs 55,038 crore. This was done to prevent savvy investors getting advantage over others, by redeeming immediately after the SC ruling. Also, fresh inflows were subject to certain restrictions to prevent new investors from seeking arbitrage play on any MTM reversal. 

Franklin Templeton MF had Rs 2,074 crore of debt exposure to VIL as of December 31, 2019, in six of its schemes. The markdown had led to 4-6 per cent dip in these on Thursday. 

If VIL’s loan facilities are downgraded below the current rating of BBB-, that would make it below investment grade. This move would require all fund houses to mark down their debt exposure to VIL, in accordance with the mark down levels stipulated by the Securities and Exchange Board of India for every rating action below the investment grade.

Last November, Care Ratings had downgraded the long-term bank facilities and NCDs of VIL to BBB- from A- after SC ruled in favour of the government, which was seeking Rs 1.47 trillion of statutory dues from telecom players.

Jash Kriplani in Mumbai
Source: source
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