Mutual fund schemes, which had segregated their Vodafone Idea Ltd exposure in side pockets, on Friday breathed a sigh of relief as they received both principal and interest payments from the debt ridden telecom firm.
Vodafone Idea cumulatively paid out ₹2850 crore to 7 bond holders including mutual funds and banks.
While the side pockets of Franklin Templeton India schemes have received ₹1252 crore, UTI Mutual Fund has received ₹166 crore and Nippon India Mutual Fund has received ₹121 crore.
These part payment will be credited in investors’ accounts in the coming week, said officials of these fund houses.
Side pocket or a segregated portfolio, ensures money invested in mutual fund debt schemes, linked to stressed assets, gets locked until the fund recovers the cash from the company.
“We have now received the full value of the principal due, along with interest for the period 12 June to 9 July 2020," said a spokesperson for Franklin Templeton in a statement.
“This amount will be distributed to unitholders of the segregated portfolio as detailed below. This is the full and final payment for this segregated portfolio and will be made by extinguishing all the outstanding units held by each unitholder therein," he added.
Nippon India in the statement said that they have received 100% of their outstanding from Vodafone which is ₹121 crore.
The payout shall be processed by extinguishing proportionate units in the plans of the segregated portfolio of respective schemes.
Earlier on 12 June the fund houses had received interest payments from Vodafone to the tune of ₹102.71 crore in case of Franklin, UTI Mutual Fund and Nippon India Mutual Fund have also cumulatively received ₹13.5 crore and ₹9.3 crore respectively.
Franklin Templeton had a total exposure of ₹2074 crore, UTI AMC is ₹551 crore, Nippon has ₹241. The remaining exposure is to longer maturity papers.
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 is currently stayed due to court rulings.
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. Nearly ₹4000 crore has been side-pocketed by mutual funds out of which ₹3000 crore have been segregated by Franklin alone. Asset managers have chosen to create more than 30 side pockets for their bond exposures to Yes Bank, Vodafone-Idea, Adilink Infra and Multitrading Pvt. Ltd, Altico Capital India, and Dewan Housing Finance Corp. Ltd.
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).