In fresh trouble for mutual funds from infrastructure contagion, two special purpose vehicles of IL&FS subsidiary IL&FS Transportation Networks (ITNL) have defaulted on debt repayment.
The two special purpose vehicles (SPVs) are Jharkhand Road Projects Implementation Company (JRPIC) and North Karnataka Expressway (NKEL). The two SPVs have, in turn, demanded a refund of debt payments from IL&FS Trustees.
A top source privy to development told Financial Chronicle, “JRPIC and NKEL, the two special purpose vehicles of IL&FS, have sent letters to IL&FS trustees, demanding an early refund of debt payments, which was made after October 15 last year.”
Earlier in January this year, the two SPVs had decided to hold back payments despite generating enough cash. The led to a ratings downgrade of their debt to ‘default’ by Crisil last week.
According to Crisil ratings director Subodh Rai, “Crisil rates two IL&FS SPVs —NKEL and JRPICL -- while JRPICL halted repayments, NKEL did not. As the matter is sub judice, we will await clarifications from NCLAT on the moratorium and, subsequently, take appropriate rating action on other SPVs wherever warranted.”
Last week, ratings agency Icra has placed ratings of six mutual fund schemes from three fund houses — HDFC, UTI and Aditya Birla — under watch with negative implications due to their exposures to special purpose vehicles (SPVs) of the debt-laden IL&FS.
These six schemes are: HDFC Short Term Debt Fund; HDFC Banking and PSU Debt Fund; UTI Banking and PSU Debt Fund; UTI Bond Fund; UTI Dynamic Bond Fund; and Aditya Birla Sun Life Short Term Opportunities Fund. Of these six schemes, Icra has downgraded Aditya Birla Sun Life Short Term Opportunities Fund to Icra AAmfs from Icra AA+mfs and brought the rating in line with five other schemes. Rating of the balance five schemes have been kept under watch.
When asked about the default, a senior official at one of the prominent fund houses said, “The rating agency’s decision is because of the high exposure of one of the big ticket highway subsidiaries of IL&FS. Only because of the NCLAT’s instruction, all types of cash outflow from the infrastructure contagion are under the moratorium rules. I think the fund houses will find the legal solutions to sort out the problems.”
In September last year, too, net asset values of at least 25 mutual fund schemes have been hit after credit rating agencies downgraded the ratings of debt securities issued by IL&FS and its subsidiary IL&FS Financial Services after the companies defaulting on interest payments on their bonds.
These mutual fund schemes hold Rs 2,700 crore of bonds and commercial papers issued by IL&FS and its subsidiaries.
Even rating agency Icra said in its report that the default risks by various SPVs of IL&FS increased after the communication. “Despite a ring-fenced structure and adequate cash flows to service the debt obligations, the SPVs were asked by the trustees to stop debiting the SPVs escrow account towards future obligations,” it had said.
“The ratings of SPVs are likely to be downgraded in case of a delay in honouring their obligations,” Icra had said, adding that it would impact the credit score of the mutual fund schemes having exposure to the SPVs.