Seeking to calm the nerves of worried investors, Kotak Mutual Fund said it was working with promoters of Essel Group to ensure 'optimal recovery' of dues.
In a communique that was sent on April 11, the Uday Kotak-owned fund house said its exposure to Essel Group is limited to six fixed maturity plans (FMPs). In Kotak Credit Risk Fund, the exposure was to the extent of 0.37 percent of its total assets under management (AUM).
"While we regret that we had to withhold certain part of its units in six FMPs viz Series 127, 183, 187, 189, 193, 194, represented by portfolio investment in Essel Group companies for now, we believe that our actions are in the interest of our unitholders," the fund house said in a statement to investors.
It also listed out steps it was taking for optimal recovery of dues. “We sought better terms for our unitholders by way of additional security in the form of a personal guarantee of Subhash Chandra (promoter of Essel Group) and a potential upside sharing from the proceeds of the strategic stake sale in Zee Entertainment Enterprises," it stated.
Kotak MF also reassured investors that the debentures will carry the same coupon rate of 11.1 percent as contracted originally in 2016.
This is the second written communication to investors in the last three days. The first letter from the fund house said that the Kotak FMP Series 127, which matured on April 8, may not be able to pay the entire redemption amount to its investors.
Investors have been worried about the safety of their investments in Kotak MF schemes after the company failed to repay the entire redemption proceeds of fixed maturity plans on time and rolled them over after prices of pledged shares of Zee Entertainment Enterprise crashed.
Essel woes In a two-page note to investors, Kotak MF explained issues surrounding its investment in Essel group with regards to FMP Series 183 and 127.
On January 25, there was a sharp correction in the share price of Zee, whereby it crashed to Rs 319 per share from Rs 434 per share the day earlier.
It later became evident that the sale of a minuscule percentage of Zee shares by some lenders, due to a margin call, led to a sharp correction in its share price. Post this over 25 percent correction, the company were unable to top-up its share collateral.
On January 26, lenders to Essel group got together to discuss the best way forward to recover their dues. Majority of lenders reached a conclusion that if all the lenders were to invoke the pledged shares and liquidate the security, it would have resulted in erosion of collateral value and led to a sub-optimal recovery of dues.
According to Kotak MF, the promoters of Essel Group said they had initiated the process of strategic stake sale in Essel group companies, including Zee Entertainment Enterprises.
"They needed some time to conclude the strategic sale process. They also needed assurance on non-enforcement of security, which was required for prospective buyers to remain engaged with them. We in the interest of our unitholders, along with the majority of lenders, chose the second option of providing time up to September 30 to the promoters of Essel Group to conclude the stake sale,” the statement said.
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