On 25th November, Aditya Birla Sun Life Mutual Fund side pocketed its exposure to Adlink Infra and Multitrading Pvt Ltd, an Essel group company. Payment on a Non-Convertible Debenture (NCD) issued by Adlink became due as a minority investor exercised a put option on the NCD, but the issuer did not honour the payment. This was taken as a credit event by the fund house. Side pocketing is a process of separating out a portion of a mutual fund’s portfolio in lieu of bad debt. The procedure was first laid out by the Securities and Exchange Board of India (SEBI) in December 2018.
Side pocketing has been carried carried out in 3 schemes of Aditya Birla Sun Life Mutual Fund - ABSL Medium Term Fund, ABSL Credit Risk Fund and ABSL Dynamic Bond Fund. As a percent of scheme assets, the three schemes have exposures of 7.5%, 3.7% and 5.6% to the paper in question. In absolute terms, the exposures are ₹419.04 crores, ₹212.93 crores and ₹160.70 crores which add up to a cumulative exposure of ₹792.67 crores.
“The repayment of the Adilink NCDs is expected to be done through the monetization of the road assets which are pledged to us as security. Given that these are unlisted infrastructure assets, the sale process is a little longer drawn owing to negotiation & finalization of all commercials, documentation as well as authority approvals," said Aditya Birla Sun Life Asset Management Company in a statement to investors of its schemes. “There are a few potential investors who are actively evaluating these road assets in parallel. We are looking to realize the best value for the entire portfolio of road assets (which include toll and annuity assets) and currently, the process is at different stages with different investors," the statement added. Mint had warned about the risking concentration risk to the Essel group in July 2019, as you can read here .