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| Capitalstars Investment Advisor |
UTI Mutual Fund, Nippon India Mutual Fund, and Aditya Birla Sun Life Mutual Fund have decided not to segregate the debt securities of Vodafone IdeaNSE 0.00 % in schemes that hold the bonds after rating company Crisil downgraded the outstanding debt of the telco to below-investment-grade.
As per regulatory guidelines, fund houses can segregate portfolios, or create a side pocket, if the rating of a company falls below investment grade. The three fund houses value the security at Rs 35, in line with valuations provided by agencies. Only Franklin Templeton Mutual Fund, the biggest holder of the security, segregated it after the rating downgrade, having marked it down to zero earlier.
“In view of the potential developments in the week of January 27-31, 2020, UTI AMC has decided not to segregate the instruments of Vodafone Idea Ltd,” said a note by UTI Mutual Fund to its investors.
On January 24, Crisil downgraded the non-convertible debentures of Vodafone Idea to BB, which is a below investment grade.
The note from UTI further added: “The company is currently a going concern and has not defaulted on any of its debt obligations to date. It paid interest payment due for the security on January 27, 2020, which will be reflected in the NAVs of the respective schemes.”
The note also said that DoT issued an order on December 24, 2019, that no coercive action be taken against telecom service providers for non-compliance of payment of AGR-related dues until further notice, and that the decision of the Supreme Court is still awaited.
“Immediately post the dismissal of the review petition on AGR judgment, given the materiality of the same on the company’s financials (including debt sustainability), the security was valued at 42.50 percent to face value. On subsequent dates, it has been further devalued, and the current valuation is at 35 percent to face value,” said a note by Nippon India MF.
Mutual funds cumulatively hold Rs 3,348 crore of Vodafone Idea paper. Franklin Templeton Mutual Fund is the largest holder with paper worth Rs 2,049 crore, Aditya Birla Sun Life Mutual Fund holds securities worth Rs 508 crore, Nippon India holds paper worth Rs 241 crore, and UTI Mutual Fund Rs 551 crore.
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