Mutual funds extend loans to listed entities against shares in promoter firms
Franklin India, Aditya Birla Sun Life and Reliance Mutual Fund are among the fund houses that have extended loans against shares in promoter firms of listed entities
Mumbai: Franklin India, Aditya Birla Sun Life and Reliance Mutual Fund are among mutual funds that have extended loans against shares to promoter firms of Dewan Housing Finance Corp Ltd (DHFL), Piramal Enterprises Ltd and Bajaj Corp Ltd, data showed.
A recent Bloomberg report had pointed to Yes Bank Ltd’s promoter firm Morgan Credits raising money from Reliance Mutual Fund against shares. “This has become a standard product for many mutual funds as a means to lend to promoters against securities,” said Dhirendra Kumar, chief executive at Value Research.
“Loan against securities/promoter funding has recently become an investment product for mutual funds. Promoters’ shares held in a private firm are used as collateral to raise funds and, as a standard practice for listed entities, it will also disclose pledge to stock exchanges,” said Arvind Chari, head of fixed income and alternatives, Quantum Advisors.
Franklin India debt funds, such as short duration fund, dynamic accrual fund, ultra short term fund, income opportunities, and corporate debt fund, have lent to Wadhawan Global Capital Ltd, the holding company for DHFL, Ma Multi Trade, a part of Shishir Bajaj group, Aasan Corporate Solutions Pvt Ltd, a private company of Piramal Enterprises, Yes Capital India and Morgan Credits Pvt Ltd, companies related to promoter of Yes Bank, according to the fact sheets of fund houses.
A spokesperson for Franklin said the firm does not comment on specific securities.
Franklin is not the only fund house. Aditya Birla Sun Life debt funds, such as medium term plan and short term opportunities, have invested in Wadhawan Global, among others. An email sent to a spokesperson for Birla was not answered till the time of going to press.
A person familiar with the developments said “it is standard practice”.
Similarly, Reliance Mutual Fund has invested in Morgan Credits, Yes Capital India of Yes Bank and Aasan Corporate Solutions of Piramal.
“We do not comment on specific investments. There are numerous holding company borrowings by issuers from India’s top business houses and all the large asset managers regularly invest in these holding companies/core investment company. This has been standard industry practice for years,” said a Reliance spokesperson.
Aasan’s paper is backed by guarantee of Shri Krishna Trust (SKT), a promoter group firm of Piramal Enterprises, according to disclosures by rating agencies. SKT, according to disclosures on BSE, holds a 39.66% stake in Piramal Enterprises.
“Aasan own several assets. The borrowing of ₹270 crore to Reliance funds (ultra short term) is against normal course of business of Aasan and it is not secured against any securities,” said a spokesperson for Piramal group.
Brickwork Ratings, in its rationale of Ma Multi Trade, said the company did not have any operational business, activities and acts as a borrowing and investing company for the Shishir Bajaj group.
An email sent to Ma Multi Trade was not answered till publishing of this story.
There has been no pledge of shares held by the promoters in WGC or any of its operating companies for the purpose of securing any borrowings for the company, said a person close to the Wadhawan group. “Instruments with this rating are considered to have the highest degree of safety regarding timely servicing of financial obligations. Such instruments carry lowest credit risk,” he said.
“As long as the pledge or encumbered shares are being disclosed in its entirety, there is no issue. Only when the investors are not aware does this pose an issue. The other important issue is the end use of these funds—whether these are going to company expansion or promoter use,” said a senior debt fund manager. In some cases, firms disclose a consolidated pledge data while omitting individual company pledge details.
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