UTI Mutual Fund marks down its debt exposure to DHFL to 100%

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Published: June 8, 2019 7:38:47 AM

DHFL had failed to repay interest and principal of approximately Rs 1,100 crore due on June 4, 2019.

UTI Mutual Fund, DHFL, CRISIL, ICRA, NCD, DHFL Pramerica, UTI Ultra Short Term FundIn April 2019, UTI MF had an exposure of over Rs 1,200 crore to DHFL, across schemes, data from Value Research shows.

UTI Mutual Fund has increased the mark-down on its debt exposure to Dewan Housing Finance (DHFL) from 75% to 100%. Moreover, the fund house has introduced an exit load for five fixed income schemes to help safeguard the interests of existing investors. In April 2019, UTI MF had an exposure of over Rs 1,200 crore to DHFL, across schemes, data from Value Research shows.

DHFL had failed to repay interest and principal of approximately Rs 1,100 crore due on June 4, 2019. UTI MF in the press release said: “As per the standard haircut table for sub-investment grade debt securities which has been provided/finalized by valuation agencies (CRISIL and ICRA) and AMFI, UTI MF had taken a 75% markdown to DHFL debt securities in the schemes that have an exposure to DHFL.”

On June 5, 2019, CRISIL, ICRA and CARE downgraded the rating on the commercial paper (CP)/non-convertible debentures (NCD) of DHFL to ‘D’, owing to the delay in debt servicing due to inadequate liquidity, modest capital position and modest earnings. The rating revision takes into account the recent instance of delay in servicing of obligations with respect to some of the non-convertible debentures by DHFL due to prolonged liquidity stress.

“In light of the above development UTI MF anticipates that there would be enhanced pressure and legal action on DHFL from all creditors, including exercise of early redemption clause and legal options by various lenders. This is expected to further delay the recovery efforts of the company in disposal of its assets in an orderly manner.

Furthermore, there is no secondary market for such securities in the current scenario. Considering the high level of uncertainty as to recovery timelines and value, UTI MF has increased the markdown to DHFL debt securities from 75% to 100% in the schemes which has an exposure to DHFL. If there is any recovery in future, the provision will be written back to the schemes on actual receipt basis,” UTI MF said in the press note.

With DHFL missing interest payments on a set of outstanding bonds several fixed income schemes have seen a fall in net asset value (NAV). The biggest drop in the NAV has been seen in the schemes of DHFL Pramerica, Tata MF, Baroda MF, BNP Paribas MF and JM Financial MF. Data from Value Research shows that, in April, mutual funds had invested around Rs 4,423 crore across 135 debt schemes in instruments issued by DHFL.

Fund houses such as DSP MF, BNP Paribas MF and DHFL Pramerica MF have suspended subscriptions to a few of their debt schemes while Tata Asset Management Company (AMC) has announced side-pocketing or creation of segregated portfolio in three of its debt schemes. UTI MF has also introduced an exit load for UTI Treasury Advantage Fund, UTI Ultra Short Term Fund, UTI Short Term Income Fund, UTI Dynamic Bond Fund and UTI Bond Fund effective from June 7, 2019. The exit load will be applicable prospectively from June 7, 2019. This has been done to deter speculative action in the schemes and to safeguard the interests of existing investors.

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