UTI Mutual Fund has decided to create a segregated portfolio in UTI Credit Risk Fund, after CARE Ratings downgraded debt instruments of Altico Capital India to 'B', which is 'below investment grade'.
Reliance Nippon Life Asset Management said that they propose to create segregated portfolio of securities of Altico Capital India held in Reliance Ultra Short Duration Fund. The data from Value Research show that mutual funds have an exposure of Rs 537.67 crore in Altico Capital India as of August 2019. Both fund houses with an exposure to Altico will have to mark down their investments in their respective funds.
UTI Mutual Fund has an investment of Rs 333.84 crore in Altico across seven debt schemes, while Reliance Mutual Fund has an investment of Rs 203.83 crore, show the data from Value Research.
UTI MF, in its release, said as on 12th September 2019, UTI Credit Risk Fund has an exposure of Rs 201.82 crore (including accrued interest of Rs 1.68 crore) in debt security of Altico Capital India, amounting to 5.85% of assets under management (AUM). "The Board of Trustees of UTI Mutual Fund have approved the creation of segregated portfolio in UTI Credit Risk Fund. Investors are hereby informed that with effect from September 13, 2019 securities of Altico Capital India will be segregated from total portfolio in the captioned scheme," said UTI.
Reliance Nippon Life AMC, in its statement, said it proposes to create segregated portfolio of securities in Reliance Ultra Short Duration Fund immediately after expiry of mandatory load free exit period of 30 days (i.e. 25th September 2019), subject to the approval from the Trustee of Reliance Mutual Fund. Moreover, to protect the interest of investors, it is proposed to suspend all ongoing subscriptions in the Fund effective from 13th September 2019 till further notice. Moreover, no dividend will be declared during this period.
Market participants say that as investments in Altico Capital is now below investments grade and there would be mark down by the fund house, which would lead to fall in net asset value (NAV) of the scheme. "According to the AMFI Valuation Committee, haircuts for senior secured securities should be 40% for other manufacturing and financial institutions and 50% in case its unsecured securities. We have to mark down the investments, but we have yet not decided how much we will mark down in this case," said a fund manager from one of the fund houses.
CARE Rating on Thursday revised rating of Altico Capital from CARE AA- to B with negative outlook. In its rationale, the rating agency said: "The revision in ratings assigned to the proposed bank facilities of Altico Capital India takes into account default in repayment of ECB (not rated by CARE) due to liquidity constraints. The revision also takes into account Altico's significant exposure to real estate sector, which is witnessing slowdown and experiencing heightened refinancing risk that is reflected to an extent with moderation in asset quality of the company.
The ratings remain constrained due to concentration risks in terms of clients, geography and sector as the company is primarily engaged in real estate financing and limited seasoning of the recently originated portfolio." Altico Capital India had said that it has defaulted on interest payment of Rs 19.97 crore on the external commercial borrowing to Mashreqbank PSC.