After months of negative news, there is something to cheer for mutual fund investors, especially those who had invested in debt schemes. Essel/Zee Group has repaid up to 60% of its outstanding debt to the mutual fund houses. DSP Mutual Fund has recovered the entire dues of Rs 150 crore via June-maturity commercial papers from Dewan Housing Finance Corp. Ltd (DHFL). These payments will have a positive impact on the concerned schemes.
The repayment by the Essel group is not totally unanticipated. The MF industry had a total exposure of over Rs 6,000 crore to the Essel Group. Last month, the group had raised Rs 4,200 crore by selling an 11% stake in Zee Entertainment to Oppenheimer. As per market sources, Essel has repaid 45% of the outstanding amount, to Aditya Birla Sun Life MF, around 50% of the total outstanding amount to HDFC Mutual Fund, about 50% of the outstanding amount to Kotak Mutual Fund and nearly 60% of outstanding amount to ICICI Prudential Mutual Fund. There is no word on the quantum of the amount repaid to Franklin Templeton MF, SBI MF, and UTI MF. It is understood that Essel has repaid about Rs 3,000 crore to mutual funds now.
Essel’s promoters have time till September end to repay the outstanding debt. They had inked an agreement with mutual funds, as per which the funds would not sell the shares that they held as collateral in the open market. If the full amount is not repaid, all eyes would be on how Essel group and funds come to an agreement on the rest of the repayment schedule. Regulator SEBI has not taken kindly to the ‘standstill agreement’ between Essel and fund-houses. However, market sources say that both Essel and fund-houses may highlight the fact that the standstill pact has yielded some results.
DSP Mutual Fund has an exposure of Rs 150 crore through commercial papers issued by DHFL. The papers were scheduled for maturity on June 25, 2019. But the ensuing liquidity crisis forced DHFL to default on multiple commitments. It did pay Rs 75 crore of dues to DSP MF in June. The remaining amount of Rs 75 crore was paid by DHFL on September 7, 2019, to DSP MF. This has resulted in complete recovery of dues.
This has positively impacted the DSP MF schemes exposed to that DHFL debt – viz. DSP Strategic Bond Fund, DSP Credit Risk Fund, DSP Low Duration Fund, DSP Dual Advantage Fund Series 45 – 38 months, DSP Dual Advantage Fund Series 44 – 39 months, DSP Dual Advantage Fund Series 46 – 36 months and DSP FMP – Series 196 – 37 months. The last 4 schemes have matured.
Investors must adopt a cautious approach when it comes to investing in funds exposed to DHFL and Essel. It is good that the companies have paid back the money, but problems are far from over. Essel group still has to repay a lot of debt it owes to mutual funds, and the clock is ticking on that September end deadline. There is no clarity on what will happen if Essel is unable to repay the mutual funds.
Similarly, DHFL lenders are mulling Rs 7,000 crore funding to keep the housing finance company afloat. Mutual funds collectively own nearly 10% of DHFL loan exposure. We have seen how Tata MF has done side pocketing or segregation of stressed assets due to its DHFL exposure.
Hence, investors should not rush into Essel and DHFL affected/exposed schemes. The credit market situation is not particularly good, especially for stressed companies. All investments in debt funds should be based on your risk profile and investment tenure.
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