NAV of PGIM funds drop by up to 30% in 1 day; UTI fixed maturity plans’ NAV drop by up to 8.20%
Debt mutual funds continue to face a harrowing time. Debt mutual funds with about Rs 650 crore exposure to Business Broadcast News Pvt. Ltd., which ran the BTVI channel, have been forced to write down the valuation of the debt securities, severely impacting NAV of some schemes.
Reliance Business Broadcast News Holdings (formerly known as Business Broadcast News Holdings) is the parent of Business Broadcast News Pvt Ltd.
Reliance Business Broadcast News Holdings is primarily held by ADA (Anil Dhirubhai Ambani) Group with a majority of shareholding with group companies of ADA group.
Care Ratings on September 12 downgraded the ratings for Rs 850 crore NCDs of Reliance Business Broadcast News Holdings to ‘D’ status. A day later, Brickwork Ratings on September 13 downgraded the ratings for the NCDs worth Rs 540 crore of Reliance Business Broadcast News Holdings to ‘D’ status.
As many as 25 debt mutual funds from three AMCs viz. PGIM (erstwhile DHFL Pramerica MF), UTI Mutual Fund and L&T Mutual Fund are exposed to Business Broadcast News. The exposure to debt securities was extremely high in some cases. Thus, when the valuation was written down, the NAV impact has been sharp in some cases.
PGIM India Ultra Short Term Fund has seen a 30% NAV drop in one day due to Business Broadcast News exposure. PGIM India Short Maturity Fund has tanked 21%. Both these funds were among the best debt fund performers in August 2019, showing the fluid nature of debt markets. PGIM India Fixed Duration Fund Series AC fell 8.75%.
In the case of UTI MF funds, a whole host of Fixed Maturity Plans, or FMPs, with exposure to Business Broadcast News, have clocked single day NAV drop between 6% to 8%. Open-ended debt funds of UTI fund-house with exposure to the ‘default’ rated debt securities include UTI Ultra Short Term Fund and UTI ULIP. A part of the fall in NAV may be due to default at NBFC Altico Capital India, which we reported here.
At least one L&T MF fixed maturity plan (L&T FMP XIV-C 1150 days) and L&T Credit Risk Fund also appear to have 2-4% net asset exposure. Limited exposure hasn’t done much harm to NAV, with L&T Credit Risk Fund NAV dropping 0.78% only.
Here is a list of open-ended funds with exposure to Business Broadcast News.
|Fund Name||Fund AUM (in Rs Cr) *||Business Broadcast News exposure % of AUM *||Market Value (in Rs Cr) *|
|UTI Ultra Short Term Fund||2,961.80||4.15||122.8|
|UTI Retirement Benefit Pension||2672.1||3.06||81.9|
|PGIM India Short Maturity Fund||110.9||64.64||71.7|
|L&T Credit Risk Fund||2510.6||2.51||63.1|
|PGIM India Ultra Short||41.4||101.89||42.2|
|PGIM India Credit Risk Fund||489||8.45||41.3|
|PGIM India Low Duration Fund||176.2||18.66||32.9|
|*August 2019 portfolio; Debt exposure source: RupeeVest; All fund options regular-growth|
According to Brickwork, Reliance Business Broadcast News Holdings Limited (RBBNHL) NCDs having ISIN “INE333L07029” had a maturity date of 11-Sep-2019 and the ISINs (INE333L07037, INE333L07052, and INE333L07060) have a maturity date of 13-Sep-2019. The SO (structured obligation) was based on a corporate guarantee issued by Reliance Capital Limited, with T minus one-day funding. Brickwork had sought information via mail dated 5-Sep-2019, 11-Sep-2019 and 12-Sep-2019 from the debenture trustee and the issuer requesting the confirmation on the timely payment of coupon/principal due on 11-Sep-2019 for ISIN “INE333L07029”.
The debenture trustee on 12-Sep-2019, informed Brickwork that they have not received any communication from the company for payment and on continued follow up by Brickwork, the debenture trustee on 13-Sep-2019 informed Brickwork that the coupon and principal payment was not done on the due date (11-Sep-2019) for ISIN “INE333L07029” and the investor (identity not disclosed) has given the extension of time. Since the issuer has defaulted in not making the payment on the due date, Brickwork said it has downgraded the rating to ‘D’ for ISIN “INE333L07029”. Brickwork has also downgraded the rating for other ISINs (INE333L07037, INE333L07052, and INE333L07060) to ‘D’.
Care Ratings also said: “The revision in the rating assigned to the Non-Convertible Debenture issue (NCD)-1a factors in delay in debt servicing on ISIN INE333L07029, the maturity of which was on September 11, 2019. Further, CARE expects that the entire payment due on the other ISINs (i.e. INE333L07037, INE333L07052, INE333L07060, and INE333L08027) on September 13, 2019 will not happen on the due date, and the ISINs are likely to be in default on maturity. Accordingly, CARE has revised the ratings assigned to NCD-1b, NCD-2, and NCD-3.”
Care Ratings said as verbally confirmed by an investor (identity not disclosed), there is a delay in debt servicing on ISIN INE333L07029, the maturity of which was on September 11, 2019. The investor has verbally confirmed that they have rescheduled the due date of ISIN INE333L07029 from September 11, 2019 to September 13, 2019. Further, the investors to the ISINs have confirmed that the payments on all the ISINs mentioned above shall be partially done on September 13, 2019 from the proceeds of the Offer for Sale (OFS) of Reliance Nippon Asset Management shares, which according to the investor has been oversubscribed.
“The balance payments towards the ISINs will be done from the share purchase agreement (SPA) entered into between the lenders, Nippon Life Insurance Company (NLIC), Reliance Capital Limited (RCL) and Indusind Bank. As per the investor NLIC has already brought the required cash in an escrow account the payment from which will be done post receipt of RBI’s approval for completion of the transaction. Further, as per the investors they will be rescheduling the due date for the unpaid part, to facilitate the SPA transaction of NLIC. Accordingly, CARE has revised the ratings assigned to ISINs INE333L07029, INE333L07037, INE333L07052, INE333L07060 and INE333L08027 to default grade,” Care Ratings added.
Debt funds seem to be an extremely tricky investment today. Retail investors should avoid high-risk debt funds. Try to stick to liquid debt funds only for retail investor purposes. The way different companies across sectors are defaulting on repayments, rating downgrades can be extremely painful. Once a company defaults, chances are low that it will get back on feet soon. Thus, do not invest in high-risk debt funds categories like credit risk funds without fully understanding the implications.
Disclaimer: Views expressed here in this article are for general information and reading purpose only. They do not constitute any guidelines or recommendations on any course of action to be followed by the reader. The views are not meant to serve as a professional guide/investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument.
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