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In a move that has put mutual fund investors in a tizzy, Kotak Mahindra Mutual Fund has withheld returns on its fixed maturity plan (FMP) that matured on Wednesday.
The asset management company is facing delayed repayments on some of the debt instruments issued by the Subhash Chandra-backed Essel Group and IL&FS Group companies. Caught in a similar situation, the country’s largest fund house HDFC Asset Management Company has extended an FMP that was supposed to mature on April 15 to April 29, 2020.
Close-ended funds
FMPs are close-ended funds that invest in debt instruments with maturity matching the tenure of the scheme. The FMPs of mutual fund industry have an exposure of over ₹8,000 crore to Essel Group debt papers. Of this, 55 close-ended FMPs have over ₹1,700 crore maturing over the next three months.
The FMP series 183 of Kotak Mutual Fund had asset under management (AUM) of ₹563 crore and exposure of ₹108 crore to debt papers issued by the Zee Group. Investors are worried that another two FMPs of Uday Kotak-owned mutual fund maturing later this month could face the same fate. The two FMP series – 187 and 127 – that are maturing this month has cumulative AUM of ₹ 951 crore and exposure of ₹186 crore to the Zee Group.
In all, six FMPs of Kotak Mutual Fund with AUM of ₹2,094 crore maturing in the next one month have invested ₹358 crore in the debt papers issued by the Zee Group. Kotak Mutual Fund, in a note, said amongst other investments, the three-year FMP scheme maturing between April and May had invested in non-convertible debentures issued by Edisons Utility Works Pvt Ltd and Konti Infrapower & Multiventures Pvt Ltd (both are Essel Group companies – secured by equity shares of Zee Entertainment Enterprises) and IL&FS Transportation Networks Ltd (credit enhancement by parent support agreement of IL&FS).
The Essel Group has been struggling with high debt and had defaulted on some of the repayments in January. The group is looking to sell stake in its entertainment, infrastructure and energy units. “We are working closely with the Essel Group for optimal recovery from Konti and Edisons for the benefit of our unit holders and believe that such a recovery will take place albeit with some delay,” it added.
For IL&FS Transportation Networks, Kotak Mutual Fund has made a 100 per cent provision as the company falls under the ‘Red’ category, wherein recovery is uncertain.
Ruling out the possibility of AMC promoters chipping in to meet the shortfall till the amount is recovered from Zee Group, a CEO of a mutual fund company said the overall amount is beyond the means of any promoter.
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