UTI, Nippon India MF create segregated portfolio of debt securities issued by Vodafone Idea

FINANCIAL EXPRESS
FEBRUARY 19, 2020

UTI MF and Nippon India MF have said they are creating a segregated portfolio of debt securities issued by Vodafone Idea. The move comes after a downgrade by CARE Ratings of various bank facilities and non-convertible debentures (NCDs) of Vodafone Idea to CARE BB- from CARE BBB-. Data from Value Research shows the exposure of mutual funds to the debt issued by Vodafone Idea stood at Rs 3,389.77 crore in December 2019.

On Tuesday, India Ratings & Research downgraded Vodafone Idea’s Long-Term Issuer Rating to ‘IND B’ from ‘IND BBB-’ while maintaining a Rating Watch Negative (RWN).

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Any debt papers which are equal or above BBB- are considered as above investment grade while those lower than that are considered below investment grade.

In December 2018, the market regulator had permitted the creation of segregated portfolios of debt and money market instruments subject to conditions like a credit event at issuer level, which is a downgrade by credit rating agency and downgrade of a debt or money market instrument to ‘below investment grade’.

CARE Ratings noted the revision in the long term ratings assigned to the various bank facilities/instruments of Vodafone Idea takes into account the significant erosion in the telco’s risk profile following the financial impact of no relief being granted to it for repaying AGR (adjusted gross revenues) dues, as also losses to the tune of Rs 6,453 crore in Q3 FY20.

“Supreme Court has also ordered telcos to clear AGR dues by March 17, 2020 and instructed the department of telecommunications (DoT) to withdraw their executive orders on no-coercive action against telcom players for unpaid AGR dues,” CARE Ratings said in its press release. The ratings continue to remain under credit watch with negative implications.

India Ratings & Research believes that Vodafone Idea does not have the ability to pay the dues by March 17, 2020, given the lack of clarity on promoter equity infusion, severe erosion in refinancing flexibility and insufficient cash balance (Rs 125 billion as of December 2019).

The SC ruling has also elevated the risk of acceleration in the payment of financial liabilities. “Also, even if Vodafone Idea pays the principal amount for AGR dues to comply partially with the SC order, the current cash and equivalent and future cash flows will prove insufficient to meet the financial obligations,” India Ratings said in its release.

UTI MF said in its press release the Board of Trustees of UTI Mutual Fund has approved the creation of segregated portfolio in UTI Credit Risk Fund, UTI Bond Fund, UTI Regular Savings Fund, UTI Dynamic Bond Fund and UTI Medium Term Fund. “Investors are hereby informed that with effect from February 17, 2020 securities of Vodafone Idea Limited will be segregated from total portfolio in the captioned schemes.”said the release. Nippon India MF announced segregation of portfolio in Nippon India Strategic Debt Fund, Nippon India Credit Risk Fund and Nippon India Hybrid Bond Fund. Side pocketing or segregation of portfolio separates stressed assets from other investment and cash holdings of a particular scheme. Doing this ensures that while the investor money in the debt scheme linked to stressed assets gets locked until the fund recovers the money from the stressed company, investors are free to redeem their money from other investments.

Earlier, Franklin Templeton MF announced segregation of portfolio in Franklin India Low Duration Fund, Franklin India Dynamic Accrual Fund, Franklin India Credit Risk Fund, Franklin India Short Term Income Plan, Franklin India Ultra Short Bond Fund and Franklin India Income Opportunities Fund.



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