Two top fund houses have marked down some of their debt schemes by 20-25% after another ratings agency Crisil downgraded two IL&FS SPV bonds.
Ratings agency Icra on Tuesday placed the rating of six mutual fund schemes under watch with negative implications owing to their exposure to three special purpose vehicles (SPV) of IL&FS.
Moreover, Crisil on Tuesday downgraded the ratings on the non-convertible debentures (NCDs) of Jharkhand Road Projects Implementation Company (JRPICL) by three notches to D from BB. On Friday, Crisil had downgraded NCDs of JRPICL to BB from AA. The rating continues to be on watch with negative implications. The downgrades have prompted two of the country’s top fund houses to mark down some of their debt schemes by 20-25%.
The net asset value (NAV) of HDFC Short Term Debt Fund and HDFC Banking and PSU Debt Fund fell 0.14% on Monday, data from Value Research show. As on December 31, 2018, the exposure of HDFC Short Term Debt Fund and HDFC Banking and PSU Debt Fund to HREL stood at 0.55% and 0.29% of asset under management of the schemes (AUMs), respectively.
The schemes, which Icra has placed on watch with negative implications, include HDFC Short Term Debt Fund, HDFC Banking and PSU Debt Fund, UTI Banking and PSU Debt Fund, UTI Bond Fund, UTI Dynamic Bond Fund and Aditya Birla Sun Life Short Term Opportunities Fund.
Icra noted that the rating action takes into account the deterioration in the credit quality of the underlying investments of these schemes driven by their exposure to SPV of IL&FS. The debt schemes mentioned have exposures to IL&FS SPV, namely, Hazaribagh Ranchi Expressway or Jharkhand Road Projects Implementation Company or Jorabat Shillong Expressway.
Data from Value Research show that assets of HDFC Short Term Debt Fund, as at the end of December, 2018, stood at `8,985 crore. The assets of HDFC Banking and PSU Debt Fund were `2,803 crore. Senior officials in the industry say HDFC MF has marked down the value of these securities by 25%.
“Even though the papers HDFC MF hold, have not yet been downgraded, they are similar to JRPICL and so the fund has marked down the securities by 25%. The funds due to HDFC MF are lying in an escrow account and a meeting of creditors has been scheduled for January 28,” said a top official from the leading fund house.
Icra stated the default risks by various SPVs of IL&FS have increased given the recent communication by the trustees future repayments might be stopped citing their interpretation of an order given by National Company Law Appellate Tribunal (NCLAT) on October 15, 2018.
“Further, in January 2019, two SPVs of IL&FS demanded a refund of the debt payment executed by them post October 15, 2018 from their trustees. Despite a ring-fenced structure and adequate cash flows to service the debt obligations, the SPVs have asked the trustees to stop debiting the SPVs escrow account towards its future obligations,” Icra noted.
The exposure of UTI Banking and PSU Debt Fund, UTI Bond Fund and UTI Dynamic Bond Fund to JSEL stood at 6.87%, 5.98% and 6.25% of asset under management of the schemes, respectively, as on December 31, 2018. Assets of UTI Banking and PSU Debt Fund and UTI Bond Fund as on December, 2018 stood at `637 crore and `802, respectively, show the data from Value Research. While assets of UTI Dynamic Bond Fund stood at `1,012 crore as on December 2018.
As on December 31, 2018, the exposure of Aditya Birla Sun Life Short Term Opportunities Fund to JRPICL stood at 1.15% of asset under management of the scheme (AUM), Icra said. The assets of the fund as on December stood at `3,925 crore and NAV of scheme fell by 0.21% on Monday.
A Balasubramanian, CEO at Aditya Birla Sun Life AMC, said the securities had been marked down by 20% in the scheme.