BILT downgrade hits Taurus MF

Over the last two years, there has been two instances of debt funds taking it on the chin, owing to credit rating downgrades of the debt instruments they hold. The latest victim is Taurus Mutual Fund.

Four of its debt schemes posted huge losses — of the order of 7-12 per cent — on February 22 after India Ratings and Research (Ind-Ra) downgraded ratings on Ballarpur Industries (BILT). Taurus Dynamic Income Fund, Taurus Ultra Short Term Bond — Super Institution Plan, Taurus Short Term Income Fund and Taurus Liquid Fund — Super Institution Plan saw their NAVs fall 11.8, 11.8, 11.1 and 7.2 per cent, respectively, on the day of the downgrade.

On February 21, the rating agency Ind-Ra downgraded BILT’s long-term issuer rating to ‘IND D’ from ‘IND BBB-’. The agency has also downgraded the company’s short-term issuer rating (commercial papers) to ‘IND A4’ from ‘IND A3’.

According to the latest portfolio data (as on January 31), the total investment held in the commercial papers issued by BILT by the four Taurus schemes stood at ₹106.8 crore. The papers were among the top holdings in the three schemes — Taurus Short Term Income Fund (11.96 per cent), Taurus Ultra Short Term Bond — Super Institution (11.94 per cent) and Taurus Dynamic Income Fund (11.84 per cent). Taurus Liquid Fund’s holdings in the paper was 4.3 per cent of its assets.

The downgrade reflects delays in debt servicing by the company. BILT, it says, continues to face delays in the necessary de-leveraging, as efforts to monetise its assets have not fructified within planned timelines. Till December 29, 2016, the commercial papers issued by BILT enjoyed ‘IND A1+’ rating, the notch signifying highest credit quality among the short-term debt instruments. On December 30, 2016, the rating agency downgraded the credit quality to ‘IND A3/RWN’ which was further downgraded to ‘IND A4/RWN’ on February 21.

This is the third time in two years that rating downgrades have impacted the NAVs of debt funds. During mid-2015, two debt schemes from JP Morgan MF were hit when Amtek Auto bonds were downgraded by rating agencies. The NAVs of JP Morgan Short Term Income Fund and JP Morgan India Treasury Fund fell 3.4 and 1.7 per cent respectively, on that day.

Similarly, in February 2016 when Crisil downgraded the long-term rating of Jindal Steel and Power to BB++ from BBB+, the NAV of ICICI Prudential Regular Savings Fund fell 0.54 per cent, while Franklin India Short Term Income Plan and Franklin India Income Opportunities Fund fell 1.63 and 1.57 per cent, respectively — all in a single day.

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