Side pockets separate stressed assets from other investments and cash holdings.
Aditya Birla Sun Life Mutual Fund has said it would create a segregated portfolio in Aditya Birla Sun Life Medium Term Plan, Aditya Birla Sun Life Credit Risk Fund and Aditya Birla Sun Life Dynamic Bond Fund because of default in payment by Adilink Infra & Multitrading, which is an Essel Group Company.
The data from Value Research show that, Aditya Birla Sun Life Mutual Funds have investments of Rs 787.74 crore as of October 2019.
“Payment on non-convertible debentures (NCD) issued by Adilink was due to the minority investor as the minority investor had exercised a put option available to them but it was not repaid by the company. Aditya Birla Sun Life MF considered this as a credit event and decided to segregate or have a side-pocketing in the portfolio. Selling of road assets takes time and creating a side-pocket will help in increasing probability of better recovery. There are road assets as security for Adilink Infra & Multitrading, a senior official in the industry said.
Side pockets separate stressed assets from other investments and cash holdings. Having them ensures that while investor money in the debt scheme linked to stressed assets gets locked until the fund recovers money from the stressed company, investors are free to redeem their money from other investments.
“The fund house is hopeful of getting 100% of the money back and are working with the management and other buyers. They had exposure of around Rs 2,500 crore to Essel Group and have got around 70% of the money back and are hopeful of getting the remaining amount also,” said the official.
Last week, Essel Group had sold 16.5% stake in Zee Entertainment Enterprises to a clutch of financial investors. Senior officials in the industry say that mutual funds received Rs 1,670 crore after the stake sale. Earlier in July, Essel Group had entered into an agreement to sell up to 11% promoter stake in ZEEL to Invesco Oppenheimer Developing Markets Fund for Rs 4,224 crore.