Vodafone Idea makes interest payment to mutual funds

MUMBAI: Mutual fund schemes, which had segregated their Vodafone Idea Ltd exposure in side pockets, have received interest payments from the telecom firm on 12 June.

While the side pockets of Franklin Templeton India schemes have received ₹102.71 crore as interest, UTI Mutual Fund and Nippon India Mutual Fund have also cumulatively received ₹13.5 crore and ₹9.3 crore respectively, said spokesperson of these fund houses.

Nippon India in the statement also said that the part payment will be credited in investors’ accounts in three days and they remain confident of receiving full payment.

The payout shall be processed by extinguishing proportionate units in the plans of the segregated portfolio of respective schemes. After the payment, the number of units outstanding in the investor account (under the segregated portfolio of the scheme) would fall to the extent of payout.

UTI and Nippon India Mutual Fund side pocketed their respective exposures to Vodafone Idea on 17 February. This was after downgrade by Care Ratings to BB- (which is below investment grade) from BBB-. A downgrade of debt below the investment grade allows mutual funds to side pocket their exposure.

Franklin had side pocketed exposure to Vodafone in 6 debt schemes on 24 January following downgrade by CRISIL. These 6 debt schemes are currently under winding up process following a decision by the fund house on 23 April.

The interest payment by Vodafone Idea to Franklin schemes segregated portfolio does not affect the refund process of these schemes. The refund process of the six debt schemes, which were wound down by Franklin Templeton citing illiquidity, with assets under management (AUM) of ₹25,856 crore has been stayed by a Gujarat High Court order on 8 June.

"For units held in physical/statement of account mode, the partial payment of the outstanding unitholding as on 12 June, 2020, will be extinguished and will be distributed to unitholders by 17 June, 2020. For units held in demat mode, the partial payment of outstanding unitholding as on 19 June 2020 (i.e. the record date) will be extinguished and will be distributed immediately after the record date," said Franklin Templeton in a press statement.

This comes as a shot in the arm for debt mutual funds, particularly the ones that had taken credit risks as many issuers struggled to make payments and pre-payments due to the coronavirus-induced slowdown.

Vodafone Idea has been impacted due to adverse rulings of the Supreme Court, which has mounted an adjusted gross revenue (AGR) liability of about ₹50,000 crores on the telco. The interest payment by Vodafone Idea is particularly significant as, the Supreme Court, on 11 June, had asked telecom operators to file affidavits on the roadmap and guarantee for payment of AGR- related dues to the department of telecommunications (DoT).

According to solicitor general Tushar Mehta, the government has extensively examined the impact on the economy if the telcos repay the entire dues at one go and rather they should do it in 20 years. The apex court, however, disagreed and said the 20-year payment plan was unsustainable.