On 1 November, India Ratings and Research downgraded non-convertible debentures (NCDs) of Vodafone Idea Ltd worth 3,500 crore to BBB from its earlier rating of A+ and placed the NCDs on negative watch. In support of its action, the ratings agency cited an adverse Supreme Court ruling, which would require Vodafone to pay 28,000 crore as part of license fees, interest and penalty.

India Ratings also noted the risk in acceleration of bank loan payments by Vodafone Idea and a delay in asset monetization. Mutual funds had an exposure of 2,335 crore to Vodafone Idea Ltd (as of 30 September, 2019) according to data from Rupeevest. A downgrade below BBB would bring mutual funds within the purview of the downgrade matrix set out by the Association of Mutual Funds of India (AMFI). The matrix prescribes a 15% write-down for senior secured assets and 25% write-down for subordinated assets companies in the infrastructure segment, which Vodafone Idea is likely to be slotted under. So far there have been no significant dips in Net-Asset Value (NAV) of the schemes holding Vodafone Idea on account of the downgrade.

According to data from Rupeevest, 31 schemes have exposure to Vodafone Idea. As a percentage of assets, exposure is highest in Fixed Maturity Plans (FMPs) of Nippon India Mutual Fund (ranging from 7-11%). Among open ended funds exposure is highest among debt schemes of UTI mutual fund, as a percentage of assets. UTI Bond Fund has a 8.61% exposure, UTI Regular Savings Fund has a 5.85% exposure, UTI Credit Risk Fund has a 5.22% exposure and UTI Medium Term fund has a 4.92% exposure.

Franklin India Credit Risk Fund, Franklin India Income Opportunities Fund, Franklin India Short Term Income Plan and Franklin India Dynamic Accural Fund have exposures of 4.39%, 3.56%, 3.54% and 2.18% respectively. Some of the schemes may have reduced exposure over the past month.

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