MF Investor Alert! ICRA puts 6 mutual fund schemes under watch with negative implications

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Updated: January 23, 2019 11:45:52 AM

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.

IL&FS crisis, IL&FS issue, IL&FS default, ICRA, mutual fund, IL&FS NCLATThe likely impact will be on the credit score of the mutual fund schemes having exposure to these SPVs.

In the aftermath of the downgrade of the loans and bonds of IL&FS, the woes of the debt mutual fund investors do not seem to be over. In a press release dated 22 January, 2019, ICRA has placed the ratings of six mutual fund schemes under watch with negative implications, driven by their exposure to the SPVs of IL&FS.

The rating action takes into account the deterioration in the credit quality of the underlying investments of these schemes driven by their exposure to special purpose vehicle (SPV) of IL&FS Limited. ICRA notes that above schemes have exposures to IL&FS SPV, namely, Hazaribagh Ranchi Expressway Limited (HREL) or Jharkhand Road Projects Implementation Company Limited (JRPICL) or Jorabat Shillong Expressway Limited (JSEL).

The default risks by various SPVs of IL&FS have increased given the recent communication by their management to trustees expressing to stop future repayments 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.

As per the press release, here is a summary of rating action.

HDFC Short Term Debt Fund: ICRA AAAmfs@; Placed on rating watch with negative implications

HDFC Banking and PSU Debt Fund: ICRA AA-mfs@; Placed on rating watch with negative implications

UTI Banking and PSU Debt Fund: [ICRA]AAAmfs@; Placed on rating watch with negative implications

UTI Bond Fund: [ICRA]AAAmfs@; Placed on rating watch with negative implications

UTI Dynamic Bond Fund: [ICRA]AAAmfs@; Placed on rating watch with negative implications

Aditya Birla Sun Life Short Term Opportunities Fund: [ICRA] AAmfs@; Downgraded from [ICRA]AA+mfs and placed on rating watch with negative implications

As on December 31, 2018, the exposure of HDFC-STDF and HDFC-BPSU to HREL stood at 0.55% and 0.29% of asset under management of the schemes (AUMs) respectively.

As on December 31, 2018, the exposure of UTI Banking and PSU Debt Fund, UTI BF and UTI DBF to JSEL stood at 6.87%, 5.98% and 6.25% of asset under management of the schemes (AUMs) respectively.

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).

In case, of delays in honouring its obligations by SPVs, the ratings for these SPVs are likely to be downgraded, thereby impacting the credit score of the mutual fund schemes having exposure to these SPVs.

The ability to rebalance the portfolios for these schemes within a month of rating action will remain a key rating driver. ICRA will continue to monitor the portfolios of these schemes regularly and take appropriate rating action as and when required.

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