The facts:
- The Medium-Term Fund DHFL Pramerica has a 37.42 per cent risk exposure and is the top among worst-hit MF schemes.
- As on 30th April, about 165 MFs have had some risk-exposure to the DHFL MF and report a greater than 5 percent of AUM.
Action by rating agencies:
No wonder the rating experts ICRA and CRISIL were quick to downgrade Home-Financer DHFL after the interest default to investors on its NCD issues. The liquidity-starved DHFL missed its deadline for payment of investor interest on NCDs.
Earlier in the year, ILFS the largest NBFC player on the market defaulted on its payments causing the cash-crunch for other NBFCs as investors grew wary and the capital markets declined lending to shadow NBFC lenders.
The downgrades by ICRA and CRISIL from A4 to a miserable D on the DHFL commercial papers-CP are indicative of the lack of trust in NBFC sectors fund management. Of the total 850 Cr Rs outstanding-CPs, June will see the maturity of around 750 Cr Rs. Not only is the liquidity position poor, CRISIL states the chances of funds being raised on time given the market conditions, are also poor. This means DHFL will have no option but to defer the maturity payments too, adding to its woes.
Officials from DHFL clarified that according to the trust deed, a curative seven day period is present when interest payments are not made on the due date. The default starts only after this period according to them. Obviously given the pressures of the banks and market-leading areas to further funding for NBFCs the impact on the capital markets for MFs will be negatively impacted.
The statistics:
Currently, the MF schemes have an exposure value cumulatively of 5,336 Cr Rs on DHFL issued securities. Another 24 AM firms dealing in 165 MF schemes from DHFL MF, report exposure to it as on 30th April. Of this pool about 106 MFs report more than 5 percent exposure of their assets managed by them. According to insider sources the MFs have assessed the DHFL securities written-down values as 75 percent asset-value for most securities. The unsecured-bonds have a WDV of 100% according to them.
Medium-Term Fund DHFL Pramerica, is the most affected MF scheme with an exposure of 37.42 percent. The Floating Rate Fund DHFL Pramerica reports exposure of 31.94 percent, the %), the Short-term Maturity Fund DHFL Pramerica of 30.47 percent, the Bond Fund of Tata Corporate a 28.21per cent and the Hybrid Fund of JM Equity a 24.61per cent exposure.
The NAV-drop of these MF funds is directly proportional to their DHFL MF exposure. Just as an example the Bond Fund by Tata Corporate saw a drop of 29.69 percent of its NAV on the night of DHFLs interest default.
The assessments:
In response to such drops in NAV the MF DHFL Pramerica, a conjoint-promoter of the AMC was considering funds inflow stoppage to the affected schemes of DHFL where interest payment obligations are unmet. In its written reply to a query by Mint,
The AMC spokesperson stated they were restricting the further purchases of the debt-affected schemes in a bid to safeguard investor interests in the MF schemes.
According to UTI Asset Management’s Fixed income head, Amandeep Singh Chopra, the regulatory guidelines were followed while the WDV and exposure were secured. A SEBI anonymous spokesperson added that it would assess the impact of the DHFL interest default on other MF schemes and if such MF securities were valued as per SEBI norms and guidelines. If the 25 percent exposure limit was breached SEBI contemplates penal action and asking the scheme affected to make good the losses and refund investors. The spokesperson also added that the MF DHFL Pramerica will be given a chance to explain why it breached and failed to limit the set investment limits of SEBI already communicated to them in writing.
Chairperson Dhruv Mehta of the Foundation of Independent Financial Advisors felt SEBI should reassess the set limits for corporate groups and individual issuers. Plan Ahead Wealth Advisors’ Founder Vishal Dhawan cautioned investors to check the concentration risk- exposure of a particular group/issuer to arrive at the exposure of the MF.
Full Circle Financial Advisors and Planners Proprietor Kalpesh Ashar, says there is no information on how deep the impact of the problem is and that investors should refrain from trying to make a killing on such MFs when and if they recover. However, the DHFL Pramerica MF claims ignorance of any SEBI probe or violation of norms and SEBI guidelines.
In parting, such MF assessments can be learned best in a Capital Market Course at Imarticus Learning.
