Unpaid obligations: NAV of debt mutual funds falls due to interest delays by DHFL

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Published: June 6, 2019 2:50:30 AM

Mutual funds have invested around Rs 4,423 crore across 135 debt schemes in instruments issued by DHFL

DHFL, debt mutual funds, NAV, Tata MF, BNP Paribas MF, Reserve Bank of India, Aditya Birla Sun Life, Reliance Low Duration FundData from Value Research showed that, till April, mutual funds have invested around Rs 4,423 crore across 135 debt schemes in instruments issued by DHFL.

With Dewan Housing Finance Corporation (DHFL) missing interest payments on a set of outstanding bonds, several fixed income schemes have seen a fall in net asset value (NAV). Market participants say the mark-down for the schemes has been around 75%-100% of the value of the assets. Data from Value Research showed that, till April, mutual funds have invested around Rs 4,423 crore across 135 debt schemes in instruments issued by DHFL.

Industry participants say DHFL has missed a deadline to pay interest of around Rs 1,000 crore. The biggest drop in the NAV was seen in the schemes of DHFL Pramerica, Tata MF, Baroda MF, BNP Paribas MF and JM Financial MF.
A debt fund manager said DHFL was scheduled to pay interest on bonds issued last year as also some other dues.”The company intimated to us it would meet the payment as scheduled but, late evening they could not arrange the funds and didn’t remit any money to the bond holders, ” he said.

As per Securities and Exchange Board and Reserve Bank of India regulations even if one day’s principal or interest is delayed it is effectively a default. “The company can claim it is just a delay and that they have seven days to pay up. However, as per existing regulations and credit rating agencies rating profile, the company will be treated as D and fund houses have to mark down the investments by 75% for secured securities and 100% for unsecured securities,” a fund manager explained.

While DHFL Pramerica Medium Term Fund saw NAV falling by 53% on June 4, 2019, the DHFL Pramerica Floating Rate Fund was down by 48.39%. Data from Value Research shows the NAV of Tata Corporate Fund fell by 29.69%. Schemes such as Baroda Treasury Advantage Fund, DHFL Pramerica Low Duration Fund, DHFL Pramerica Short Maturity Fund and BNP Paribas Medium Term Fund saw their NAV reduce by 17-13%.

In terms of absolute exposure, Reliance Low Duration Fund and UTI Short Term Income Fund has invested Rs 408.30 crore and Rs 353.93 crore respectively in debt instruments of DHFL in April, data from Value Research shows. Fund houses such as Aditya Birla Sun Life, Axis Mutual Fund, Franklin Mutual Fund, DSP Mutual Fund, UTI Mutual Fund are among other investors.

DHFL on May 22, 2019 had stated that it has stopped accepting and renewing fixed deposits due to the recent revisions in credit rating of fixed deposits programme of the company. On May, 14, CARE Ratings downgraded DHFL borrowings worth around Rs 1.13 lakh crore, days after another rating agency Crisil had downgraded commercial papers issued by DHFL worth Rs 850 crore on 11 May. On Wednesday, Crisil downgraded its rating on the commercial paper (CP) of Dewan Housing Finance Corporation Limited (DHFL) to ‘CRISIL D’ from ‘CRISIL A4+’.

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