MFs anxious about Rs 8K cr Zee group exposure; side pocketing may help
Madhusudan Sahoo

MFs anxious about Rs 8K cr Zee group exposure;  side pocketing may help
MFs anxious about Rs 8K cr Zee group exposure; side pocketing may help

Though the Essel Group has managed the lenders to avert a defaulter tag for now, the mutual fund houses linked with the group are virtually in a ‘shock’ mode. While the sharp fall in the stock prices of group companies dented the net asset values, or NAVs, of equity funds holding these scrips last Friday, fear is looming large among leading fund houses that the crisis might spread to their debt funds as well.

More than Rs 8,000 crore worth bonds and debentures issued by the group firms are held by 150 debt mutual funds. Of this, Rs 6,329 is invested in 60 open-ended debt funds and the balance Rs 1,672 crore is in 90 fixed maturity plans (FMPs).

However, they are also relieved that the Essel Group has reached an understanding with lenders. This, they hope, could arrest the decline in key Essel Group stocks. Group companies’ shares had plummeted 10-33 per cent on Friday, triggered by reports of payment defaults and sale of pledged shares. On Tuesday, share prices of Zee Entertainment Enterprises (ZEEL) closed at Rs 377.70, up by 1.40 per cent on the BSE.

In a statement issued after the meeting with lenders last week, the Essel Group stated that it has been agreed that the no default will be declared due to the steep fall in price and there will be synergy and co-operation amongst lenders.
Defending the mutual fund sector on the Essel Group issue, A Balasubramanian, CEO, Aditya Birla Sun Life AMC, however, said, “We have always believed in the intrinsic value of Zee Entertainment. I am very glad with the outcome of the meeting, which enabled us to arrive at a consensus, in the interest of all stakeholders.”

As far as mutual fund exposure in the Essel group is concerned, Aditya Birla Sun Life Mutual Fund is the biggest investor, with an exposure of Rs 2,936 crore spread across 28 schemes. This is almost 37 per cent of the total debt fund exposure to the Zee group. However, Balasubramanian is confident that the prices of these bonds and debentures will not be impacted. “These bonds are secure,” he said.

HDFC Mutual Fund, the second largest investor in Zee group debt with an exposure of Rs 1,196 crore, has also most of its exposure through FMPs. It has invested over Rs 900 crore in bonds and debentures through 38 FMPs. Some FMPS have over 20 per cent of their assets invested in Zee group companies.

One scheme alone has Rs1,288 crore invested in Zee group bonds. As on December 31, 2018, the Aditya Birla Sun Life Medium Term Plan held zero-coupon bonds worth Rs 720 crore issued by Sprit Infrapower & Multiventures Pvt Ltd (credit rating A) and Rs 568 issued by Adilink Infra & Multitrading Private Ltd (unrated). The two holdings account for 12.5 per cent of the fund’s total Rs 10,272 crore portfolio and are its top holdings.

Another scheme, the Aditya Birla Sun Life Credit Risk Fund, held Rs 740 crore worth of zero-coupon bonds of Sprit Infrapower & Multiventures and Adilink Infra & Multitrading. Both the two holdings account for 9.2 per cent of its portfolio, with Sprit Infrapower as its top holding (5.62 per cent). The Aditya Birla Sun Life Dynamic Bond Fund has over 8 per cent of its Rs 5,136 crore portfolio invested in Sprit Infra bonds.

In percentage terms, Baroda Mutual Fund schemes have the largest exposure to the group’s bonds. As on December 31, 2018, the Baroda Credit Risk Fund had Rs 168 crore invested in zero-coupon bonds of ARM Infra & utilities and Cyquator Media Services.

Together, this is 17.7 per cent of its Rs 947-crore portfolio.The silver lining for debt funds is the new rule that allows side pocketing of distressed assets. It is an accounting method that separates illiquid bonds from quality investments in a debt portfolio. “If the Zee group bonds crash, open-ended debt funds may cushion themselves by putting them aside in a separate side portfolio. The fund’s NAV then reflect the value of the liquid assets, with a separate NAV assigned to the side pocket assets based on their estimated value,” said a CEO of fund house.