Reliance Mutual Fund had the highest exposure worth Rs 1,749.76 crore, followed by Franklin Templeton, which held around Rs 960.47 crore in ADAG debt papers as on March-end
As many as 10 fund houses had an exposure worth Rs 5,000 crore to the debt papers of Anil Dhirubhai Ambani Group (ADAG).
Concerns have cropped up after ADGA Group's Reliance Home Finance (RHFL) was downgraded by CARE Ratings. The latter downgraded the housing finance company’s long-term debt programme of Rs 4,979 crore to default due to delay in servicing bank debt.Why the downgrade?
The rating was downgraded to CARE D from CARE BBB+ due to delays in debt servicing with some of the banks and factored in linkages between RHFL and its parent Reliance Capital, the report stated.
Instruments with CARE D rating are in default or are expected to be in default soon.
RHFL is one of the country’s leading private sector home loan companies, incorporated in 2008.
Clearing the air, RHFL issued a press release stating: "We have been affected by a timing mismatch with regards to the ongoing securitisation/monetisation proposals with banks. The same has resulted in minor delay on principal repayments aggregating Rs 542 crore to around five-to-six banks and is limited only to our bank borrowings."
“RHFL expects to regularise all such repayments very shortly. We have already completed securitisation of over Rs. 5,500 crore in debt papers from October 1, 2018 till date. We are engaged in active discussions for further securitisation/monetisation of our asset base,” the company said.
It reassured investors that it is completely current and regular on principal repayments on all its capital market borrowings aggregating Rs 7,708 crore.What Reliance MF said?
After the downgrade of RHFL, Reliance Nippon Life Asset Management Company also issued a press release stating, “Reliance Mutual Fund (RMF) has an exposure of Rs 535 crore and Rs 1,083 crore to long-term non-convertible debentures issued by RCFL (Reliance Commercial Finance) and RHFL, respectively. These exposures are held in roughly 10 percent of RMF’s total 166 fixed income and hybrid schemes.”
“Till maturity of these instruments, and in line with SEBI regulations, there will be a mark-to-market valuation impact on the above exposure on the basis of revised valuation provided by independent valuation agencies, with corresponding impact on net asset values of schemes holding these investments,” the statement added.
ExposureRMF had the highest exposure worth Rs 1,749.76 crore, followed by Franklin Templeton, which held around Rs 960.47 crore in ADAG debt papers as of March 31.
In a response to an e-mail query sent by Moneycontrol, L&T Mutual Fund, which had an exposure worth Rs 290 crore to ADAG debt papers, stated, "CARE has downgraded Reliance Commercial Finance's standalone rating from BBB+ to C/D. We have nil exposure to any of these downgraded instruments. We have exposure to Rs 40 crore of RCFL's NCDs in two fixed maturity plans, which are backed by a 100 percent corporate guarantee of Reliance Capital. Accordingly, our NCDs continue to be rated at par with Reliance Capital and are currently rated at CARE A(SO), which is investment grade, and hence valued as per the valuation provided by independent valuation agencies."
The spokesperson for DHFL Pramerica MF said: ''We would like to confirm that DHFL Pramerica's current aggregate exposure to the ADAG entities stands reduced to INR 340 cr, since there was a repayment in one of our holdings during the month of April 2019. The exposure pegged at INR 415 cr is therefore incorrect. Our exposure to Reliance Commercial Finance is a structured transaction based on the credit enhancement offered by the Parent - Reliance Capital which is rated Care A. As such, our structure also carries the rating of Care A (So). There is no change in the ratings of our instrument despite the change in rating of Reliance Commercial Finance on a stand-alone basis. Being investment grade securities, it does not warrant any mark down. Valuation of these bonds are assigned by the external rating agencies (Crisil and Icra) on a daily basis.''
While RMF has taken a call to mark down the debt securities, others are yet to take a call.
Ratings downgrades affect MF schemes holdings such papers. After downgrades, MFs mark down the valuation of debt papers as per SEBI's MTM norms. Like in case of IL&FS and Essel Group earlier, Kotak Mutual Fund had marked down the securities by half.
In September last year, rating agency ICRA downgraded debt papers of IL&FS by several notches, across maturities. Other rating agencies such as CARE had also downgraded papers of IL&FS and its group companies.
Back then, MF schemes with exposure to IL&FS and IL&FS Financial Services had to take a 25 percent markdown on their holdings in these instruments.
The NAV of at least 25 MF schemes were hit after credit rating agencies downgraded the ratings of debt securities issued by IL&FS and its subsidiary IL&FS Financial Services.
It remains to be seen by how much the two ADAG papers are marked down by MFs, how much it affects their NAVs and how many redemptions come in open debt schemes after this news.For the past seven months, ever since the IL&FS episode, all categories of lenders in India, including banks, MFs, etc, have put a complete freeze on additional lending to HFCs and non-banking finance companies (NBFCs), and have instead only been insisting upon reduction of existing borrowings.Subscribe to Moneycontrol Pro and gain access to curated markets data, exclusive trading recommendations, independent equity analysis, actionable investment ideas, nuanced takes on macro, corporate and policy actions, practical insights from market gurus and much more.