JP Morgan AMC manages to recover 85% of Amtek bond dues

At long last, JP Morgan Asset Management Co. Ltd has managed to sell the Amtek Auto Ltd bonds it had, recovering about 85% of what it invested.

Unit holders in the so-called side pocket of two of its schemes—JP Morgan India Treasury Fund (JTF) and JP Morgan India Short Term Income Fund (JSTI)—who were stuck till the time the fund house could get rid of its Amtek Auto Ltd investment can start redeeming their units, effective Monday. Side pocket is a type of account created to separate illiquid funds from the more liquid ones.

These set of units have now been made open-ended, making it easy for sale. “The fund house has been speaking to distributors throughout the day, alerting them as well as investors directly in many cases, about the sale of the troubled paper,” said an industry official close to the developments who did not wish to be identified.

Senior officials of JP Morgan Asset Management Co. Ltd did not respond to calls made for comment.

In August, the net asset values (NAV) of JSTI and JTF sank sharply on the back of a downgrade in Amtek Auto’s own credit rating. Soon after that, JP Morgan AMC restricted redemptions, in these schemes, to 1% of each of the two scheme’s corpus.

In September, the fund house lifted the cap but segregated the units of both schemes. The Amtek Auto holding was carved out into separate units, popularly known as a side pocket.

One set of units contained the investments made in Amtek Auto Ltd (side pocketed units) while the other set of units contained all other investments and cash holdings. These side pocket units, which were shut for redemptions, are now open, as the fund house was able to sell the troubled paper.

The industry official quoted above said the fund house was able to realize ₹ 85, as opposed to a face value of ₹ 100 that the bond carried. But since the fund had already written off about ₹ 25 per bond when the scrip was downgraded in August, and had subsequently given a face value of ₹ 10 to the side pocket units, the NAV of the side pocket units will now rise to about ₹ 11.08 to ₹ 11.09.

On 20 November, The Economic Times had reported that JPMorgan AMC will sell the Amtek Auto bonds that it was holding to Asian vulture investor SSG Capital Management. Mint could not confirm the name of the buyer of the Amtek bonds.

On 26 November, the Reserve Bank of India allowed foreign investors to buy corporate bonds that may be in default, paving the way for such a transaction to be completed.