Stuck with huge exposure to IL&FS Transportation and Essel Group, Kotak MF sends SoS to investors
Investors of Kotak FMP Series 183 were told that almost 27% of the scheme corpus of Rs 457 crore is invested in three troubled entities facing liquidity crisis.
The fund house noted that it had invested in NCDs issued by Edisons and Konti and they are secured by equity shares of Zee Entertainment. (Representational Image)
What may come as a shock to investors of debt mutual funds, Kotak Mahindra Mutual Fund, in a recent note to investors of Kotak FMP Series 183, said that almost 27 per cent of the scheme corpus of Rs 457 crore is invested in three troubled entities facing severe liquidity crisis: IL&FS Transportation Networks Limited (ITNL), and two Essel Group companies (Edisons Utility Works and Konti Infrapower & Multiventures).
With over a quarter of the invested corpus stuck at the time of maturity of the scheme, the fund house looked to reassure the investors by saying that it is working towards optimal recovery from two Essel Group companies (with exposure of 19.24 per cent of the corpus). The fund house, however, added it has made full provision for investment in ITNL “as the recovery is uncertain.”
Sources said while the fund house has exposure of around Rs 350 crore through eight fixed maturity plans (FMPs) to the Essel Group, it had invested around Rs 85 crore in ITNL. Of the eight FMPs that raised around Rs 2,000 crore, two FMPs that raised around Rs 790 crore have already matured.
While investors are worried not only about their interest income but also the capital invested, a top official with the company said that while in case of the first FMP that matured this month, the fund house managed to repay full capital to the investors, it fell marginally short of repaying the full capital in the second FMP that matured on April 10, 2019. The remaining six FMPs that have exposure to Essel Group entities and ITNL are set to mature in April- May 2019.
“Against the invested corpus of around Rs 790 crore in the two FMPs (that grew to over Rs 1,050 crore), the fund house has repaid Rs 826 crore to the investors. Of the corpus, Rs 235 crore are stuck on account of investment in ITNL (Rs 45 crore) and investment in Edisons and Konti (Rs 190 crore). While we paid capital plus some gains in case of first FMP, in the case of the second FMP we have paid 99.25 per cent of the investment capital of investors.
“Though ITNL investment has been written off, we are confident that by 30th September, 2019 we will be able to recover Rs 190 crore invested with Essel Group entities (following its successful strategic sale) and will be able to return it to the investors with accrued interest,” said a top official with the fund house.
In its note to the investors, the fund house said, “We are working for optimal recovery from Konti and Edisons for the benefit of unit holders and are hopeful that such recovery will happen albeit with little delay. Any realisation from said investments will be shared proportionately with the unit holders subsequently.”
The fund house noted that it had invested in NCDs issued by Edisons and Konti and they are secured by equity shares of Zee Entertainment.
As the Essel Group faced debt repayment crisis, Zee Entertainment’s share prices fell steeply on January 25, 2019. Over the following days promoters of Essel Group held deliberations with lenders including mutual funds and NBFCs where a majority of lenders decided not to declare event of default as it may result in steep fall in price given panic selling in the Zee Entertainment thereby eroding collateral value and resulting in sub-optimal recovery.
“Essel promoters are working for resolution of above through a strategic sale of Zee …. likely to be achieved by September 30, 2019 as per communication from Essel promoters,” said the fund house.
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