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| Capitalstars Investment Advisor |
UTI Mutual Fund and Nippon India MF Monday decided to create a segregated portfolio, following in the footsteps of Franklin Templeton Mutual Fund, which had already segregated the investments last month.
Mutual funds invested in the debt of Vodafone Idea, the telco that must pay the government Rs 53,000 crore in dues, has begun segregating those investments into a separate portfolio after the company’s creditworthiness was downgraded in light of the stressed finances.
UTI Mutual Fund and Nippon India MF Monday decided to create a segregated portfolio, following in the footsteps of Franklin Templeton Mutual Fund, which had already segregated the investments last month.
Net debt at Vodafone Idea, at the end of the December quarter, is about Rs 1.03 lakh crore, a level analysts believe is unsustainable for a company that is losing subscribers and can’t generate enough funds internally if it were to pay the demanded dues to the state.
Earlier Monday, CARE Ratings downgraded Vodafone Idea to BB-, a rating indicating below investment grade paper. UTI MF said that as of February 14, UTI Credit Risk Fund, UTI Bond Fund, UTI Regular Savings Fund, UTI Dynamic Bond Fund, and UTI Medium Term Fund have exposures to the debt securities of Vodafone Idea, the market value of the investment is Rs 186 crore.
Three schemes of Nippon India Mutual Fund — Nippon India Strategic Debt Fund, Nippon India Credit Risk Fund, and Nippon India Hybrid Bond Fund — have exposure in the debt securities of Vodafone Idea. The face value of these investments is Rs 227 crore.
In a note to investors, Nippon India Mutual Fund said: “In light of no further relief and the Supreme Court’s re-iteration of the requirement to make the payment, the company’s operations are likely to become unviable, unless there is significant equity infusion. The promoters of VIL have hinted that they will be unable to continue the operations of the company on a going concern basis unless there is meaningful relief on the AGR dues.”
The telecom industry was plunged into a crisis on Friday after the Supreme Court came down heavily on the telcos for not adhering to its January 23 deadline of paying their outstanding AGR dues and on the telecom department for issuing an order that no coercive action be taken against telcos for missing the earlier deadline.
On January 24, a day after the initial deadline expired, Crisil downgraded the non-convertible debentures of Vodafone Idea to BB, due to which both UTI and Nippon India Mutual Fund had marked down the security and valued it at Rs 35, in line with valuations provided by agencies.
After the segregation, existing investors in the relevant schemes will be allotted an equal number of units in the segregated portfolio as those held in the main portfolio. No subscription or redemption will be allowed in the segregated portfolio of the captioned schemes.
In case investors in any of these schemes choose to redeem their units, they will get redemption proceeds based on the net asset value of the main portfolio and will continue to hold units of the segregated portfolio.
The units of the segregated portfolio will be listed on the stock exchange.
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