Fund houses take differing stance on Vodafone-Idea AGR-related debt

Experts say not taking markdown can benefit savvy investors that exit exposed schemes

The Supreme Court's decision on Thursday to reject review plea of telecom companies on additional gross revenue or AGR-related dues has led to differential treatment by funds houses, with some schemes taking 100 per cent mark down on their debt exposure to Vodafone Idea, while some schemes yet to take a call on whether the asset needs to be re-valued in anticipation of a likely default or rating action.  

On Thursday, Franklin Templeton MF, which has Rs 2,073 crore of exposure to Vodafone Idea (as of December 31, 2019) in six of its schemes, marked down the exposure to zero as a prudential move to protect the interests of its existing shareholders.

This led to four to seven per cent dip in the schemes' net asset values (NAVs) that were exposed to the telecom company's debt instruments. Overall, Franklin Templeton MF's debt exposure to the company accounted for 61 per cent MF industry's exposure. The MF industry has debt exposure of Rs 3,389 crore, spread across 45 schemes.

According to experts, in such situation fund houses need to be more nimble-footed so that one set of investors don't get an advantage over others. "Some investors could pull out from the schemes immediately after the SC ruling, even before there is an actual incident of default or a rating downgrade to below-investment grade. This can give advantage to certain set of investors," said a fund manager, requesting anonymity.

For Vodafone Idea, the dues amount to Rs 53,038 crore. The telecom player said it is "exploring further options, including filing of a curative petition".

Following, the move by Franklin Templeton MF, Nippon India MF also decided to markdown its exposure to Vodafone Idea to zero.

Experts add that schemes -- especially those with large allocation of their corpus to Vodafone Idea -- might see investors getting differently impacted than those that don't redeem in time.

"It is the responsibility of the fund houses to ensure that one set of investors don't get benefit over others in such situations," said Dhirendra Kumar, founder and chief executive officer of Value Research.

Meanwhile, other schemes that are yet to take a call on whether there needs to be markdown belong to Birla Sun Life MF and UTI AMC. The latter has high percentage exposure to debt paper of Vodafone Idea in its credit risk fund (7.32 per cent of assets), UTI Bond Fund (8.32 per cent ) and UTI Regular Savings Fund (5.57 per cent). Overall, the fund house has exposure of Rs 557 crore to Vodafone Idea.

Franklin Templeton MF has also limited fresh inflows to its schemes to Rs 200,000 per fund per investor with the view to avoid giving arbitrage opportunities in schemes with markdowns.

The denial of immediate relief from SC also led to erosion of value for equity shareholders. For mutual funds, value of their holdings got eroded by Rs 264 crore, with Vodafone Idea's shares closing 25 per cent lower. The foreign portfolio investors' saw the value of their holdings getting eroded by Rs 546 crore.