Page 20 - Banking Finance September 2019

MUTUAL FUND

Reliance Mutual Fund HDFC MF holds 9.17% in beleaguered CG Power and
brings new feature in its Industrial Solutions
Mutual Funds have invested a large chunk of their equity portfolio in CG Power
debt and hybrid schemes and Industrial Solutions, where a financial fraud
Reliance Nippon Life Asset Manage- to the tune of thousands of crores has been de-
ment Company has recently declared tected. Five mutual fund houses have significant
the amendment of its scheme infor- exposure to the beleaguered company.
mation documents (SIDs) in a host of Among them, HDFC Mutual Fund had 9.17% in-
its debt and hybrid funds. vested in the company as on June 30, 2019, and

A side pocketing provision has been Aditya Birla Sun Life, had deployed 8.92%. IDFC Mutual, Reliance Mutual Fund
introduced in the schemes that are and Franklin Templeton Mutual Fund are the other fund houses that had expo-
17 in number including Reliance Ul- sure in the range of 1-3 percent as on June 30, 2019 in the company. Two differ-
tra Short Duration Fund, Reliance ent segments are held by CG Power, power systems and industrial systems.
Strategic Debt Fund, Reliance Short The company had informed stock exchanges that an investigation by an inde-
Term Fund, Reliance Prime Debt pendent law firm had found that some employees had carried out unauthorised
Fund, Reliance Money Market Fund, transactions that led to a potential understatement of not just the liabilities of
Reliance Low Duration Fund, Reli- CG Power, but even of advances to related and unrelated parties of the com-
ance Liquid Fund, Reliance Income pany and the group.
Fund, Reliance Hybrid Bond Fund, Shares of the company had fallen 20% on August 19 after the company's regula-
Reliance Floating Rate Fund, Reli- tory filing about the irregularities. "While working on one of its priority tasks of
ance Equity Hybrid Fund, Reliance seeking refinancing of certain facilities and as a part of conducting financial analysis
Equity Savings Fund, Reliance Dy- in this regard, the Operations Committee was made aware of some unauthorised
namic Bond Fund, Reliance Credit transactions by certain employees of the company," the filing to BSE said.
Risk Fund, Reliance Banking and PSU
Debt Fund, Reliance Balanced Advan- Mutual Funds likely to face another hit of Rs. 1,500 cr
tage Fund and Reliance Arbitrage
Fund. in September
The mutual fund industry is likely to see another possible loss of Rs 1,500 crore
An exit-load free window of 1 month
over the next month on investments in the debt pa-
to exit the schemes in question has pers of Dewan Housing Finance Corporation Ltd (DHFL).
been given to investors which will Investments of Rs 1,479 crore in DHFL’s debt papers
end on 24th September 2019. This by nearly 80 mutual funds are coming up for repay-
exit period has to be given because ment in September. Some of the prominent mutual
the introduction of a side pocketing funds whose investments are maturing include Kotak
provision constitutes a change of Mutual Fund, Axis MF, UTI MF, Reliance MF, Sundaram MF and Invesco MF.
fundamental attributes of a mutual
Most of the mutual funds, including Reliance Mutual Fund and UTI Mutual Fund,
fund scheme.
have completely written down their investment. Sunil Subramaniam, Manag-
Side pocketing is the creation of seg- ing Director and CEO, Sundaram Mutual, said, “Sundaram Mutual has an in-
regated portfolios in lieu of bad debt vestment of Rs 50 crore in DHFL debt papers maturing next month and the board
when there is a downgrade in paper has approved plans to use the option of side pocketing”.
held by a scheme below investment DHFL has recently stated that it has defaulted on Rs 46.92 crore towards inter-
grade or when there is a default. A est on secured NCDs and NCDs issued through a public issue for multiple tenors
side pocket allows an investor to exit involving interest of Rs 364 crore and principal of Rs 1,060 crore. It also has
the remaining untainted part of the defaults of Rs 100 crore on its commercial papers. The NBFC has not been able
debt scheme at will and still benefit to fulfil its obligations towards debt repayment in the recent past and there
from any recovery in the bad debt have been several cases of defaults on its commercial papers and bonds. It is
later. estimated to be sitting on a debt-pile of over Rs 90,000 crore.

20 | 2019 | SEPTEMBER | BANKING FINANCE