{"id":1057,"date":"2019-09-17T04:47:24","date_gmt":"2019-09-17T04:47:24","guid":{"rendered":"http:\/\/blog.certifiedfinancialguardian.com\/?p=1057"},"modified":"2019-09-17T05:59:26","modified_gmt":"2019-09-17T05:59:26","slug":"does-your-debt-mutual-fund-scheme-have-exposure-to-debt-papers-of-yes-bank-and-altico-capital","status":"publish","type":"post","link":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/2019\/09\/17\/does-your-debt-mutual-fund-scheme-have-exposure-to-debt-papers-of-yes-bank-and-altico-capital\/","title":{"rendered":"Does Your Debt Mutual Fund Scheme Have Exposure To Debt Papers Of Yes Bank And Altico Capital?"},"content":{"rendered":"\n

Toxic debt papers have impacted the financial wellbeing of debt mutual fund investors. After the IL&FS default episode<\/a>, many others such as DHFL<\/a>, Reliance Media Works, Reliance Infrastructure, Essel Group, Amtek Auto and Jindal Steel & Power Ltd (JSPL)<\/a> were in news for financial distress and\/or poor governance. The credit risk hasn\u2019t reduced; in fact, now it has amplified amidst the economic slowdown and turbulence in the capital market. <\/p>\n\n\n\n

Recently, as reported by the press, after Yes Bank<\/a> shares plunged due to family feud, corporate governance issues, poor compliance, and on asset quality concerns, Reliance Mutual Fund<\/a> has asked the promoters of Yes Bank to top their collateral up by Rs 500 crore. <\/p>\n\n\n\n

Graph 1: Tumultuous\nride for Yes Bank investors\u2026<\/em><\/strong><\/p>\n\n\n\n

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Data\nas of September 13, 2019
Note:\nPrice adjusted after stock split
(Source:\nNSE)<\/p>\n\n\n\n

Rana Kapoor and his family-owned firm Morgan Credits Pvt. Ltd (MCPL), the promoters of Yes Bank, which hold 4.31% and 3.03% respectively, had pledged their total 7.34% stake with Reliance Nippon Life Asset Management Ltd (the asset manager of Reliance Mutual Fund) amounting to around Rs 1,500 crore. <\/p>\n\n\n\n

The timing of the\nabove development assumes significance, as speculations are rife that Mr Rana\nKapoor plans to sell his unpledged 2.97% stake in Yes Bank and is in advance\ntalks with Vishal Shekhar Sharma, the founder of Paytm. <\/p>\n\n\n\n

Although, as per\ncertain media reports, while Mr Kapoor has the consent from Reliance Nippon\nLife Asset Management Ltd. do so and fetch over Rs 1,500 crore and pay the money\nowed, here\u2019s what Yes Bank stated and clarified in its stock exchange filing on\nSeptember 10, 2019: <\/p>\n\n\n\n

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(Source: www.bseindia.com<\/a>)<\/p>\n\n\n\n

Reliance Mutual Fund<\/a> had a remarkable exposure of Rs 2,177 crore as on July 31, 2019, to debt papers of Yes Bank debt papers, while the cumulative exposure of other mutual fund houses was Rs 1,242 crore. <\/p>\n\n\n\n

The risk for Reliance Mutual Fund, in particular, is amplified after the SEBI\u2019s board decision<\/a> (taken in June 2019) to make mandatory for \u201cdebt secured by shares\u201d as the collateral to have a cover at least four times the debt issued. While the time frame for this has not been defined, it is expected that it will be brought into force soon. <\/p>\n\n\n\n

Reliance Mutual\nFund also has a good amount of exposure to toxic debt papers of Mumbai-based\nAltico Capital India Ltd as well, a Non-Banking Finance Company (NBFC)\nincorporated in January 2004 by the name of Clearwater Capital Partners India\nPrivate Ltd financing the real estate sector. Altico Capital has defaulted on\ninterest payments worth Rs 19.9 crore due to Mashreq Bank, Dubai on September\n12, 2019, on a principal amount of Rs 340 crore. <\/p>\n\n\n\n

Here\u2019s what the\nAltico Capital India said\u2026<\/p>\n\n\n\n

\u201cOur\nfailure to repay the amounts set out above may result in an acceleration of\ninterest repayment and redemption obligations in respect of non-convertible\ndebt securities issued by us and may trigger a default in their timely\nrepayments. We are evaluating options for resolving the liquidity crisis and\nwill be engaging in discussions with various stakeholders for the same.\u201d<\/em><\/strong><\/p>\n

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India Ratings and Research (Ind-Ra) has downgradedAltico Capital India\u2019s Long-Term Issuer Rating to \u2018IND D\u2019 from \u2018IND A+\u2019 and Short-Term Issuer Rating to \u2018IND D\u2019 from \u2018IND A1\u2019. The rating agency has also assigned a \u2018Negative\u2019 outlook for both.<\/p>\n\n\n\n

Table 1: How debt papers of Altico Capital India are rated?<\/em><\/strong><\/p>\n\n\n\n

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(Source: India Ratings and Research Press Release<\/a>)<\/p>\n\n\n\n

The reasons for\nthe downgrade cited by the rating agency are:<\/p>\n\n\n\n