The fact that JP Morgan AMC invested in bonds of Amtek Auto in January 2015 and bought the bonds in the secondary market from Axis Bank has led fund managers within the mutual fund industry to question the investment rationale of the fund house. Axis Bank is clearly the gainer as it managed to liquidate part of its holding in the debt papers of troubled auto part maker just before they turned illiquid.
A look into the monthly portfolio holding of JP Morgan India Treasury Fund and JP Morgan Short Term Income Fund reveals that the two schemes had no exposure to the money market bonds of Amtek Auto till December 2014. However, the disclosure as on January 31, 2015 shows that JP Morgan India treasury fund held money market bonds of Amtek Auto worth Rs 190 crore.
In February, a part of the Amtek Auto bonds amounting to Rs 65 crore were shifted from the India treasury fund to the short-term income fund which means that the risk was also transferred to the short-term income fund.
While the investment was done only months before these papers turned illiquid, an insider said that the investment by JP Morgan AMC was not done in the primary market. “The fund house bought Amtek Auto paper in the secondary market from Axis Bank. This makes the entire investment very curious because normally there is no secondary market for these papers,” said the source. He further added, “If it was primary market transaction it means that JP Morgan AMC dealt directly with Amtek Auto, but it is little strange that the fund house gave exit to someone else in secondary market.”
When The Indian Express asked JP Morgan India and JP Morgan AMC on the rationale behind such an investment providing exit to another investor and further sought details of the deal with Axis Bank, JP Morgan India in an e-mail response said, “We decline to comment.”
Similarly, in response to an e-mail sent to Axis Bank, that sought details of the deal and asked if the papers were sold in the secondary market because the bank thought they had turned risky, Axis bank said: “Axis Bank invests and divests bonds in the market as a part of its normal treasury activities. As a matter of policy, we do not comment on individual client transactions/investments.”
While Amtek Auto has been under financial stress for a few quarters now, JP Morgan AMC was the only mutual fund to have subscribed to bonds of Amtek Auto and invested close to Rs 200 crore in it. While the bonds were then AA rated, Amtek Auto’s bonds saw a downward revision in rating by Care Ratings to AA (-) in May 25, 2015 and then 10 weeks later in August, the agency suspended its rating on the company saying that Amtek Auto was not furnishing them the required information. This made the JP Morgan AMC’s investment in the company illiquid.
While investors queued to withdraw their investments from the two schemes of the fund house, JPMorgan AMC restricted redemption from the two schemes on August 28.