Even as Reliance Mutual Fund has sold shares worth Rs 410 crore of Zee Entertainment Enterprises, other fund houses are still awaiting the September 2019 deadline, having signed a standstill agreement.
The Essel Group, promoter of Zee, had raised money from the fund house by pledging shares with it.
While Reliance MF declined to comment on the rationale behind selling the collateral, mutual fund industry officials said the company was not a part of the consortium of lenders with whom Essel Group has arrived at the standstill arrangement.
According to the agreement, which has received approval from most lenders, promoters have been given time until September 2019 to repay the loans. Further, lenders would not sell the pledged shares of the group companies during this period.
“We have not exited Essel Group as we are part of the consortium. We will wait till the September 2019 deadline,” Nilesh Shah, Managing Director, Kotak Mutual Fund, told Moneycontrol.
Share prices of Essel Group companies had fallen 10-33 percent in January this year, on talk that the group was facing a cash crunch.
Following the market rout, Essel Group founder Subhash Chandra sought time from mutual funds to repay the loan against shares.
Essel Group had sought three months time from lenders and creditors to find a buyer for half the stake in Zee Entertainment which was later extended till September 2019.
Lenders had agreed in January that no default will be declared due to the steep fall in the share price of the company and the fund houses will wait till September 2019.
OTHER FUNDS
The total debt holdings by six mutual funds in Essel Group stands at Rs 7,600 crore. The six MFs--Aditya Birla Sun Life, ICICI Prudential, SBI, Franklin Templeton, HDFC Mutual Fund and Kotak Mutual Fund-- had signed a standstill agreement with Subhash Chandra promoted Essel group, for which the redemption has been rescheduled for September 2019.
The total mutual fund industry exposure to the Essel Group stood at Rs 8,000 crore as on December 31, 2018.
Last month, Kotak Mutual Fund deferred full redemption in six fixed maturity plans (FMPs) that held papers of two Essel subsidiaries — Edison’s Utility Works and Konti Infrapower & Multiventures.
Kotak Mutual Fund has loaned Rs 378 crore to Essel Group, on the back of 1.27 crore Zee Group shares as collateral and personal guarantees from promoters.
HDFC MF too announced the extension of its fixed maturity plan — Series 35 — a close-ended scheme due for maturity on April 15, by 380 days.
According to the data from ACEMF, there are almost 100 schemes that have exposure to the distressed Essel and its group companies.
SEBI QUESTIONS
The capital market regulator, Securities and Exchange Board of India issued show-cause notices to HDFC Mutual Fund and Kotak Mutual Fund seeking details about their investments in the debt instruments of Essel Group companies.
SEBI has charged the mutual funds of not fulfiling the investor protection norms by delaying the payments due on fixed maturity plan and for giving loan against shares.
In a filing to stock exchanges, HDFC Asset Management Company said it has received two show-cause notices from SEBI, dated May 10, in relation to investments in FMPs of HDFC Mutual Fund in debt instruments of Essel Group companies.
"We are working with our legal advisors and are in the process of responding to the said show-cause notices," the filing said.
Mutual fund houses like Aditya Birla Sun Life Mutual Fund, HDFC Mutual Fund and Franklin Templeton Mutual Fund have individual investments worth more than Rs 1,000 crore in Essel Group companies.
Aditya Birla Sun Life Mutual Fund has the highest exposure of Rs 2,936 crore in the company’s instruments.
Of the total exposure of Rs 7,600 crore to the troubled Essel Group and IL&FS debt instruments, around Rs 1,400 crore is held by FMPs.
According to the latest data on Association of Mutual Funds in India (AMFI) showed that FMPs witnessed a net outflow of Rs 17,644 crore in April while net outflow from debt-oriented schemes stood at Rs 18,949.76 crore.
Correction: A previous version of this article, in one place, said Reliance AMC had sold Zee shares as its parent was facing a liquidity crisis. The statement has been removed after the company pointed out that the AMC's investments are owned by unitholders, and a sale does not in any way affect the parent company's financial situation.
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