MFs reel from Reliance Business Broadcast Holdings default; exposure around 100% in one scheme

PGIM India Ultra Short Term Fund has a shockingly high exposure of around 100% of its portfolio in the troubled paper and PGIM India Short Maturity Fund has 64% of its portfolio in the troubled debt (Photo: iStock)

Mutual funds, Reliance Business Broadcast Holdings, Reliance ADAG Group, CARE Ratings, BTVi, UTI Ultra Short Term Fund, RNAM

On 12th September, CARE Ratings downgraded Reliance Business Broadcast Network Holdings Ltd (a Reliance ADAG Group company) to D due to a delay in debt servicing. Reliance Business Broadcast Network Holdings Ltd holds Business Broadcast News Private Limited as a 100% subsidiary. The latter, which operated the business TV channel BTVi, reportedly halted operations on 1st September 2019.

Mutual Funds have a roughly 654 crore exposure to Reliance Business Broadcast Network Holdings Ltd as per data from Rupeevest. In absolute terms, the highest exposure is in UTI Ultra Short Term Fund. However it is the percentage exposures that are alarming in several schemes. PGIM India Ultra Short Term Fund has a shockingly high exposure of around 100% of its portfolio in the troubled paper and PGIM India Short Maturity Fund has 64% of its portfolio in the troubled debt. PGIM India Ultra Short Term Fund was down 30% on September 13th while PGIM India Short Maturity Fund was down 21%. Other funds with large exposures as a percentage of scheme assets include PGIM India Low Duration Fund (18.66% of AUM), PGIM India Credit Risk Fund (8.45% of AUM). UTI Ultra Short Term Fund (4.15% of AUM) and UTI Retirement Benefit Pension (3.06% of AUM).

PGIM India Mutual Fund (formerly DHFL Pramerica Mutual Fund) released a note announcing that it had received 50% of the money owed to it. However it had marked down 50% of the balance value of the outstanding debt. The debt in question is in the form of loan against shares (LAS) which is backed by the stock of Reliance Nippon Life Asset Management (RNAM). PGIM India said that the value of the shares is 1.75 times the balance money owed to it. The balance amount is proposed to be settled from the proceeds to be realized from the sale of RNAM shares to Nippon Life, the owner and largest shareholder in RNAM.

For its part, UTI Mutual Fund decided not to take a haircut more than 10% of the value of the troubled debt. “The existing exposure is backed by the pledge of shares of Reliance Nippon Asset Management Company Limited (RNAM), which are to be acquired by Nippon Life Insurance (NLI) (as a part of its increase, its shareholding in RNAM up to the maximum permissible limit of 75%) at the price equivalent to the open offer price. As the mechanism of payment and price calculations w.r.t the shares pledged to UTI MF is pre-decided, UTI MF is not exposed to any material price/ market risk and will be paid as soon as all approvals for Nippon Life Insurance are in place. At present the securities are valued at 90% of the face value. Hence we feel that the current markdown to 90% of Face Value on these outstanding NCD’s is fair, despite the adverse rating movements- given the certainty of payments in the short-term,” a note released by the fund said.

A number of FMPs of UTI and PGIM India are also exposed to the affected paper as is L&T Credit Risk Fund and an FMP of L&T Mutual Fund.

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