1 min read.Updated: 26 May 2020, 11:53 AM ISTNeil Borate
The loss is most likely on account of decline in the value of Zee Entertainment and Dish TV shares that may have been offered as collateral.
In June 2019, the AMC had moved ₹500 crore worth of Essel paper from its schemes to its own books.
HDFC Asset Management Company has reported a mark-to-market loss of around ₹120 crore on the Essel group's non-convertible debentures (NCDs)—that it took on its books in June 2019— for the fourth quarter of financial year 2020. With the ₹25-crore loss that the AMC took in the previous quarters, the total valuation loss comes to ₹145 crore.
In June 2019, the AMC had moved ₹500 crore worth of Essel paper from its schemes to its own books. This implies that it has altogether taken a valuation loss of 30% on the debt.
According to a person with knowledge of the matter who declined to be named, the loss was most likely on account of decline in the value of Zee Entertainment and Dish TV shares that may have been offered as collateral. Zee Entertainment's shares have collapsed from ₹361 to ₹164.90 over the past one year, while Dish TV has fallen from ₹31 to ₹4.6 during the same period.
HDFC AMC and Kotak AMC had Essel paper in fixed maturity plans (FMPs). However, they agreed to join the standstill agreement of Essel lenders agreeing to not enforce collateral against Essel debt till September 2019. As a result HDFC AMC rolled over (extended) its FMPs and Kotak AMC held back some payments to unit holders. Subsequently, HDFC AMC took the Essel paper from its schemes to its own books to ensure unit holders were repaid.
However, capital markets regulator the Securities and Exchange Board of India (Sebi) launched adjudication proceedings against both fund houses and fined HDFC AMC ₹9 crore. It is unclear what fine, if any, was imposed on Kotak AMC. The latter repaid its unit holders after money was recovered from Essel following a stake sale in September 2019 to Invesco Oppenheimer, a global asset manager.
Recently Franklin Templeton AMC reported a default on paper issued by Essel Infraprojects Ltd (EIL) in four of its schemes. (You can read more about this here bit.ly/2XwultK)
"In hindsight, HDFC AMC's move has benefitted unit holders. However, investors should note that this was a one-off case and done probably because the product was an FMP. Investors should not expect large AMCs to keep taking bad debt on their books," said Amol Joshi, founder, Plan Rupee Investment Services, a financial planning firm.