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Home/ Mutual Funds / News/  Ind-Ra downgrades Voda Idea debt to one notch above junk, 31 MF schemes exposed

Ind-Ra downgrades Voda Idea debt to one notch above junk, 31 MF schemes exposed

  • India Ratings downgraded the telecom major's long-term issuer ratings on NCDs worth 3,500 cr
  • Ind-Ra downgraded Vodafone Idea's rating to IND BBB from IND A plus and simultaneously placed it on rating watch negative

India Ratings also noted the risk in acceleration of bank loan payments by Vodafone Idea and a delay in asset monetization

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.

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.

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.

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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.

ABOUT THE AUTHOR

Neil Borate

Neil heads the personal finance team at Mint. A former colleague called them 'money nerds' and that's what they are. They cover topics like mutual funds, taxation and retirement, all to improve your chances of building wealth. Neil graduated with a degree in law and economics. He passed the CFA Level I exam and began his writing career at Value Research, a mutual fund research firm in 2016. He joined the personal finance team Mint in 2019. Everyday, the Mint Money Team tackles personal finance questions such as where to invest and where to borrow, through articles, charts and reader queries. They also have a daily podcast - 'Why Not Mint Money' and an annual ranking of mutual funds - the Mint 20.
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Updated: 02 Nov 2019, 03:26 PM IST
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