For Nippon India, this is 4th issuer for which segregated portfolios are being made after Vodafone Idea, Reliance Capital, and Altico in the last seven months
With Yes Bank debt ratings downgraded by ICRA to ‘D’ (Default) amid a reconstruction scheme triggering the ugly prospect of the cash-strapped lender’s AT1 bonds being written down permanently, Nippon India Mutual Fund is creating segregated portfolio of Yes Bank securities in five schemes with effect from March 6, 2020. In value terms, Nippon India Mutual Fund schemes had the highest Yes Bank debt exposure amongst AMCs at Rs 1,806.2 crore (market value) as on January 31, 2010.
On March 6, rating agency ICRA downgraded the ratings of debt worth Rs 52,611.70 crore of Yes Bank to “D” status. This amount included Basel III compliant additional Tier I (AT1) Bond programme worth Rs 10,800 crore. This rating downgrade set the stage for side pocket (segregated portfolio) creation. As per the Information Memorandum (IM) of AT1 bonds, in case authorities decide to reconstitute the bank or amalgamate the bank under Section 45 of Banking Resolution act 1949, the bank will be deemed as non–viable or approaching non–viability and the trigger for write down/conversion of the additional tier 1 bonds will be activated.
Nippon India Strategic Debt Fund, Nippon India Credit Risk Fund, Nippon India Hybrid Bond Fund, Nippon India Equity Hybrid Fund and Nippon India Equity Savings Fund had exposure to the perpetual bonds issued by Yes Bank (the issuer) under Additional Tier 1 (AT1) Basel III framework. As a prudent measure and in order to protect the value of existing unit-holders of the schemes of Nippon India Mutual Fund (NIMF), the fund-house had already marked down the perpetual bonds of Yes Bank in the holding schemes to zero on March 5, 2020. The coupon in Yes Bank AT1 bonds subscribed by Nippon India ranges between 9.0% to 9.5%.
The processing of subscriptions and redemptions in the schemes have been suspended on the day of the credit event (March 6, 2020) till Trustee approval for segregation is received, as per regulatory guidelines. Suspension of processing of subscription/ redemption is applicable to fresh subscription, additional subscription, switch-in, subscription by way of Systematic Investment Plan (SIP) including existing SIPs, Systematic Transfer Plan (STP) including existing STPs or subscription by way on any other mode(s)/facility(ies), full & partial redemption, switch-outs and withdrawals through any mode such as Systematic Withdrawal Plan (SWP). No dividend has been declared on the said date.
All investors in the schemes as on the day of creation of segregated portfolio shall be allotted equal number of units in the segregated portfolio as held in the main portfolio. Once the segregated portfolio is created, no subscription and redemption will be allowed in the segregated portfolio of the captioned schemes. Investors redeeming their units will get redemption proceeds based on the NAV of main portfolio and will continue to hold the units of segregated portfolio. Upon recovery of money from the segregated portfolio, whether partial or full, it will be distributed to the investors in proportion to their holding in the segregated portfolio. The AMC will enable listing of units of segregated portfolio on the recognised stock exchange within 10 working days of creation of segregated portfolio and also enable transfer of such units on receipt of transfer requests.
The AMC will disclose separate NAVs of segregated and main portfolios from the date of creation of segregated portfolio.
In the last seven months, this is the fourth issuer for which Nippon India MF (formerly Reliance MF) has to create side pockets.
The Board of Directors of Nippon Life India Trustee Limited (formerly known as Reliance Capital Trustee Co. Ltd) had approved the creation of segregated portfolio of securities of Vodafone held in three schemes with effect from February 17, 2020. These schemes are Nippon India Strategic Debt Fund, Nippon India Credit Risk Fund and Nippon India Hybrid Bond Fund.
The Trustees of Reliance Mutual Fund had approved the creation of segregated portfolio of securities of Reliance Capital held in Nippon India Equity Hybrid Fund (Reliance Equity Hybrid Fund) & Nippon India Equity Savings Fund (Reliance Equity Savings Fund) immediately after expiry of mandatory load free exit period of 30 days (i.e. 25th September 2019).
The Trustees of Reliance Mutual Fund had approved the creation of segregated portfolio of securities of Altico Capital held in Nippon India Ultra Short Duration Fund (Reliance Ultra Short Duration Fund immediately after expiry of mandatory load free exit period of 30 days (i.e. 25th September 2019).
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