Don't take Covid-related recast as default: Sebi to MF valuation agencies

Markets regulator Sebi on Thursday asked mutual fund valuation agencies not to consider restructuring of debt and non-receipt of dues solely due to COVID-19 related stress as a default.

The valuation agencies appointed by the Association of Mutual Funds in India (Amfi) provide valuation of money market and debt securities and recognise default of securities.

Any proposal of restructuring received by debenture trustees will be communicated to investors immediately, the Securities and Exchange Board of India (Sebi) said in a circular.

Further, any proposal received by mutual funds from lenders/issuer/debenture trustees will be reported immediately to the valuation agencies (along with the other material information required for the purpose of valuation), credit rating agencies and Amfi.

On receipt of such information, Amfi will immediately disseminate it to its members.

"If the valuation agency, based on its assessment of the proposal, is of the view that the proposed restructuring is solely due to fallout of COVID-19 pandemic then the valuation agency may not consider the restructuring/non receipt of dues as a default for the purpose of valuation of money market or debt securities held by mutual funds," Sebi said in a circular.

Further, valuation agencies will ensure that change in terms of investment, financial stress of the issuer and the capability of issuer to repay the dues or borrowings on the extended dates are reflected in the valuation of the securities.

In case there is any difference in the valuation of securities provided by two valuation agencies, the conservative valuation will be accepted, Sebi said.

The direction will be in force till December 31, 2020, the regulator said.

Earlier, Sebi had provided relaxation to credit rating agencies in recognition of default for restructuring by lender or investors arising solely due to COVID-19 related stress.