INSUBCONTINENT EXCLUSIVE:
sparked a major crisis with its default prompting a rare government intervention, its cash-rich and profitable SPVs are now giving a
different kind of headache to mutual funds and other debt investors.
Aditya Birla Sun Life Mutual Fund and HDFC Mutual Fund on Monday marked
down value of investments in debt securities of two road projects owned by a unit of ILFS after one of them defaulted and prospect of other
following suit remained high.
Not a Genuine DefaultRating agency Crisil downgraded bonds sold by Jharkhand Road Projects Implementation
Company (JRPICL) to junk status and similar action awaits many of road projects that are generating cash
But fund managers tried to calm nerves saying developments were due to litigation.
Rival rating agency ICRA has placed six schemes belonging
to mutual funds of Aditya Birla Sun Life, HDFC and UTI on rating watch due to deterioration in credit quality of underlying investments.
The
markdowns by mutual funds and downgrades are unusual considering that SPVs are generating cash and in a position to repay lenders
Rating companies fear many assumptions under which lenders bought bonds of SPVs are now in doubt.
Investors and experts warn that this
action by ILFS and subsequent downgrades will have a major impact on debt financing for infrastructure projects.
Infrastructure SPVs are
generally protected from defaults by parent companies through ring-fencing
We have taken a 20% markdown loss
also not repay loans.
HDFC Mutual Fund has written off 25% of its exposure in Hazaribagh Ranchi Expressway Ltd
UTI is said to be in process of doing same for its exposure in Jorabat Shillong Expressway (JSEL)
The scheme, which manages assets worth ?10,272 crore, saw its net asset value fall by 0.57% on Monday.
Aditya Birla Sun Life Mutual Fund
holds non-convertible debentures worth ?685 crore in JRPICL while HDFC Mutual Fund holds papers worth ?232.5 crore in Hazaribagh Ranchi
UTI MF owns papers amounting to ?559.07 crore in Jorabat Shillong Expressway.
