Franklin Templeton Investments has reduced its exposure to Jindal Steel and Power (JSPL) by about half between January and February. While the fund house had a collective exposure of around Rs 1,588.8 crore to the Naveen Jindal-promoted firm in the form of debt paper, this has been pruned to Rs 728.9 crore, data from disclosures on the fund’s website shows.
The development is interesting since following a downgrade of JSPL’s paper by rating agency Crisil on February 15, the fund house had on February 16, in a note to distributors, said many of the problems currently being faced by JSPL are temporary in nature.
“JSPL has strong relationships with banks, with the banks having an exposure of approximately R37,000 crore on the group (JSPL and its subsidiaries),” Franklin Templeton wrote.
“We owned commercial paper of JSPL aggregating to Rs 1,300 crore in our funds, the company repaid the entire amounts on the respective due dates in October and November 2015 despite extraordinarily tough quarters (Q2 & Q3 FY2016) operationally. The company has regularly been servicing monthly interest on the NCDs held by our various funds,” the note from the fund house said.
Crisil had on February 15 downgraded JSPL’s long term rating to ‘BB+’ from ‘BBB+’ while its short-term rating had been reduced to ‘A4+’ from ‘A3+’. Last month, ICRA too made similar revisions to various debt instruments of JSPL worth Rs 37,650 crore.
In an email response, a spokesperson for Franklin Templeton said, “While we do not comment on individual securities we can confirm that we have brought down the exposure to JSPL across our corporate bond fund portfolios during February 2016.”
The data for February show that schemes such as Franklin India Dynamic Accrual Fund, Franklin India Income Builder Fund, Franklin India Short Term Income Plan, Franklin India Income Opportunities Fund and Franklin India Corporate Bond Opportunities Fund have an exposure in the range of 1.5-3% of their net assets to JSPL in the form of debt paper.
Crisil justified its revision of the rating, saying the group’s asset monetisation will be delayed and will lead to a deterioration in the JSPL Group’s cash flows and liquidity over the near term. In addition, continued pressure on realisations in the steel business, delays in refinancing of debt taken for its Angul (Odisha) plant, and delays in receipt of proceeds from settlement at Bolivia are expected to put pressure on JSPL’s cash flows. “Crisil had earlier expected these to be completed before March 31, 2016; delays would adversely impact group’s debt-servicing ability in the near term and increase group’s reliance on timely refinancing of debt taken for Angul (Odisha) steel plant. Any delay in the said refinancing beyond Crisil’s expectations of March 2016 could lead to severe pressure on cash flow and will hence remain a key monitorable,” the rating agency wrote.
In August last year, JPMorgan Mutual Fund faced a problem due to its exposure to debt securities of Amtek Auto and had restricted redemption from two of its debt schemes — Short Term Income Fund and India Treasury Fund. The move to stop redemptions came in the wake of a decline in NAVs of the schemes which had a collective exposure of about Rs 200 crore to the auto ancillary player.
Write or wrong?
Crisil downgrades JSPL paper on February 15
Franklin note to distributors on February 16 supports JSPL
Franklin pares exposure to JSPL by half in February to Rs 728.9 crore