SBI Mutual Fund has written down its exposure to Reliance Home Finance to zero, prompting steep cuts in several close ended hybrid schemes of SBI Mutual Fund. The fund house had earlier on 28th June 2019, written down its exposure to Reliance Home Finance by 75% and its current write down wipes out the balance 25% value of this debt. SBI Mutual Fund had an exposure of around ₹800 crore to the company of which the remaining ₹200 crore was written off.
In public statement, SBI Mutual Fund notes that Reliance Home Finance continued to default on its payment obligations and no resolution has been finalised under an Inter Creditor Agreement (ICA) framework. The fund house called a meeting of debenture holders on 14th November and the secured NCD holders passed a resolution on 19th November calling an ‘Event of Default.’ Following this, IDBI Debenture Trustee called for an acceleration of dues giving the issuer 7 days to make payment which expired on 26th November. Reliance Home Finance failed to make repayment as required, prompting the write down.
Altogether 12 schemes of SBI Mutual Fund had exposure to the company, many of them close ended funds that are set to mature in 2020. For instance, SBI Dual Advantage Fund Series XXII was launched in May 2017 and is set to mature in May 2020. The scheme saw a 2.21% drop in its NAV on Friday taking its return since inception (CAGR) to just 2.14%. Experts have recommended a cautious approach to debt funds in view of the large number of downgrades and defaults."We typically recommend only large open ended funds which have high AAA assets. Problems can occur in open ended funds, but you have an exit option there," said Nishith Baldevdas, founder, Shree Financial, a Chennai based financial advisor.