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UTI Mutual Fund writes off exposure to crisis-hit DHFL

Care Ratings has downgraded DHFL’s bank facilities of Rs 42,713 crore, non-convertible debentures of Rs 46,655 crore, fixed deposits of Rs 8,940 crore and subordinated debt of Rs 2,205 crore to the ‘D’ category.

By: ENS Economic Bureau | Mumbai | Updated: June 8, 2019 5:13:12 am
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UTI Mutual Fund (MF) on Friday said it has written off its entire exposure to the securities of crisis-hit of Dewan Housing Finance Corporation Ltd (DHFL), which has defaulted on repayments. DHFL shares, which crashed around 16 per cent on Thursday, plunged another 11 per cent on Friday to close at Rs 83.50 on the BSE following the rating downgrade to the default status.

Care Ratings has downgraded DHFL’s bank facilities of Rs 42,713 crore, non-convertible debentures of Rs 46,655 crore, fixed deposits of Rs 8,940 crore and subordinated debt of Rs 2,205 crore to the ‘D’ category. The total liabilities of DHFL downgraded to the D category amount to Rs 102,563 crore.

“In light of the above development UTI MF anticipates there would be enhanced pressure and legal action on DHFL from all creditors, including exercise of early redemption clause and legal options by various lenders. This is expected to further delay the recovery efforts of the company in disposal of its assets in an orderly manner,” UTI MF said in a release.

Read | DHFL’s shadow looms over real estate and auto

Considering the high level of uncertainty as to recovery timelines and value, the fund house said it has raised “the markdown to DHFL debt securities from 75 per cent to 100 per cent in the schemes which has an exposure to DHFL.” If there is any recovery in future, the provision would be written back to the schemes on actual receipt basis, it added.

The fund house also introduced an exit load on certain schemes from Friday, which are UTI Treasury Advantage Fund, UTI Ultra Short Term Fund, UTI Short Term Income Fund, UTI Dynamic Bond Fund and UTI Bond Fund. “The introduction of the exit load is on prospective basis (i.e. will be applicable only to investors who invest in these schemes from June 7, 2019 onwards and not to existing investments),” the release said.

This has been done to deter speculative action in the funds and to safeguard the interests of the existing investors, it added.

Meanwhile, DHFL said on Friday it was taking all necessary steps to ensure payment of the due interest within the seven-day period as prescribed under the respective trust deeds pertaining to the non-convertible debentures.
On Thursday, Tata Asset Management Ltd said it has proposed to create segregated portfolio of securities of DHFL held by three schemes immediately after expiry of mandatory load free exit period of 30 days. The schemes are Tata Corporate Bond Fund, Tata Medium Term Fund and Tata Treasury Advantage Fund.

According to rating firm ICRA, the liquidity position is stretched as evidenced by delay in meeting debt obligation by the company. “The company has Rs 750 crore commercial paper (CP) programme maturing in June 2019 with first repayment on June 7, 2019. Given the stretched liquidity position and limited visibility on fund raising, DHFL is unlikely to be able to service its debt obligation with regard to CP programme in a timely manner,” ICRA said.
Banks are also worried about their huge exposure of close to Rs 50,000 crore. “Challenges faced by accounts like DHFL have already been factored in when we have given our estimate for the stress that the bank would have to deal with in FY19-20 and included in our estimates for slippage and loan loss provisioning for the current financial year,” SBI said.

Reserve Bank Governor Shaktikanta Das on Thursday said the central bank is closely monitoring the developments in the NBFC sector and housing finance companies and will ensure that financial stability is maintained.

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