DHFL-exposed MF schemes suffer 30-50% drop in NAVs, Icra data shows

Mutual fund exposure to DHFL debt paper was Rs 5,169 cr as on April-end; instruments have not yet been downgraded to 'default' or D grade

The mutual fund (MF) industry faces another round of markdowns following delay in interest payments by Dewan Housing Finance Corporation (DHFL). The firm was supposed to meet obligations amounting to Rs 960 crore on Tuesday.

On Tuesday, schemes with top exposures to DHFL debt paper saw a sharp fall in their net asset values (NAVs). The NAV of DHFL Pramerica medium-term fund (exposure 37 per cent) fell by 53 per cent on Tuesday, while that of its floating-rate fund (exposure of 32 per cent) was down 49 per cent. Among other schemes, the NAV of Tata corporate bond fund (exposure of 28 per cent) shed 29 per cent on Tuesday. BNP Paribas Medium Term Fund and JM Low Duration Fund (exposure of 14 per cent and 18 per cent, respectively) saw 10-12 per cent fall in NAVs on Tuesday.  The above data is collated from Icra's MF database and Value Research.

According to people in the know, several schemes would have to bear the brunt of a downward revision in the valuation of DHFL bonds, as the housing finance company was widely-held by MFs. According to sources, the valuation agencies have already given the lowered pricing to MFs to revise valuations of their DHFL exposures. 

"We have already received the pricing change from valuation agencies. However, the papers are not yet downgraded to 'default or D' grade," said a fund manager, requesting anonymity.

DHFL was unable to make the interest payment due on Tuesday, on some of its non-convertible debentures (NCDs). Most of the outstanding exposures of MFs are related to DHFL's NCDs as fund houses have reduced exposure to the firms' commercial papers post IL&FS-crisis. 

According to data from Prime MF database, MFs exposure to DHFL debt paper stood at Rs 5,169 crore at April-end. Under the new norms laid down by industry body Association of Mutual Funds in India (Amfi), an instrument downgraded to 'default or D' grade has to be marked down at 75 per cent. 

Fund managers say they are keenly watching how rating agencies act as DHFL has maintained that the payment miss should be construed as 'delay' not 'default'.

Meanwhile, the Securities and Exchange Board of India (Sebi)'s proposed definition says a single day's delay of even a rupee of interest or principal should be regarded as a default.