Franklin Templeton Mutual Fund has marked down its exposure to Anil Dhirubhai Ambani Group (ADAG) and Essel Infra Projects (EIL) in five schemes. The net asset values (NAV) of five debt schemes fell 0.41-3.37 percent after the marked down.
In a note to investors, the fund house said, “The debt securities of Anil Dhirubhai Ambani Group (ADA Group) and EIL held by schemes of Franklin Templeton Mutual Fund (FTMF) have been marked down on March 9.”
The schemes impacted are:
- Franklin India Short Term Income Plan (Number of segregated portfolios - 3)
- Franklin India Dynamic Accrual Fund (Number of segregated portfolios - 3)
- Franklin India Low Duration Fund (Number of segregated portfolios - 2)
- Franklin India Income Opportunities Fund (Number of segregated portfolios - 2)
- Franklin India Credit Risk Fund (Number of segregated portfolios - 3)
Earlier on December 5, 2019, non-convertible debentures (NCDs) issued by Essel Infra Projects were valued based on a 50 percent haircut as the bank loan facility of the issuer was downgraded to default (D).
The fund house said, "On March 9, securities were valued again and an additional haircut of 35 percent of the fair value was taken. The cumulative haircut factored in the value of EIL, which now stands at 85 percent of the face value on a cumulative basis."
Explaining the rationale for a markdown, the fund house said that global stock markets have fallen sharply from March 9 onwards as investors continue to worry about the broader economic effects of coronavirus outbreak. “Bearish sentiment has adversely affected stock prices and potential liquidity of listed share collateral. Longer than expected time to monetise assets has increased dependency on listed share collateral for recovery. Due to continued stress in the issuer groups, we have further marked down NCDs of EIL, Reliance Big Pvt and Reliance Infrastructure Consulting & Engineering Pvt to reflect the same at fair value.”
Soothing investor concerns, the fund house said the securities are backed by listed shares of ADAG.
Mutual fund experts told Moneycontrol that with ADAG group companies bankrupt and Essel group restructuring of bad loans, the value of the balance (15 percent) debt portfolio remains doubtful.
A mutual fund manager said it is time for fund houses to seriously introspect its inhouse ratings processes instead of just relying on external rating agencies.
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