Sudhir Valia's Sun Pharma stake helps ARC, realty business raise debt

MFs take exposure to realty arm; guarantee by investment entity gives top rating

Sudhir Valia, brother-in-law of Sun Pharmaceutical Industries’ founder Dilip Shanghvi, has got a helping hand in running his own businesses due to the family’s stake in India’s largest drug maker by sales. 

At least two of Valias' entities, Suraksha Realty and Suraksha Asset Reconstruction Company (ARC), have the backing of Lakshdeep Investments and Finance, which holds Valias' stake in Sun Pharma. Taking comfort from the investment entity’s stake in the latter, mutual funds (MFs) have exposure of nearly Rs 13 billion to Suraksha Realty, which operates in the Mumbai and Thane region.

To a Business Standard query, Lakshmi Iyer, chief investment officer at Kotak MF, said: “We have total exposure of Rs 7.9 billion, as on December 3. Our entire exposure is secured by guarantee from Lakshdeep Investments and Finance and also backed by shares of Sun Pharmaceutical, so as to ensure initial share cover of 1.75 times.”

ICICI MF, another fund house that participated in Suraksha Realty’s private placement of debt papers (according to ministry of corporate affairs’ filings), did not respond to queries on the credit quality of these holdings. 

ICICI Ultra-Short Term Fund and ICICI Floating Interest Fund had exposure of Rs 4.9 billion, as on October 31. 

“The rating assigned to short-term NCD (non-convertible debentures) of Suraksha Realty takes into account credit enhancement in the form of unconditional and irrevocable corporate guarantees provided by Lakshdeep Investments and Finance,” CARE Ratings said in a recent note.

The entity’s debt papers were given a rating of A1+ (SO). A rating of A1+ is considered to have a 'very strong degree of safety regarding timely payment of financial obligations and carry lowest credit risk’.

While Suraksha ARC doesn’t seem to have issued any debt papers to MFs, filings with the MCA show the Valia-led Accelerate Mercantile had participated in a private placement offer of compulsory convertible unsecured debentures of the ARC. These had a maturity of five years, with annual interest at 12 per cent. The filings show Accelerate Mercantile had a loss of Rs 200,000 in 2017-18.

Accelerate itself has parked Rs 19.5 million in ICICI MF’s liquid fund- institutional plan. This was almost equal to the company’s total net worth at the end of FY18. 

Analysts say a substantial fall in the value of Lakshdeep’s investments in Sun Pharma could impact the ratings of both Suraksha entities. The share price of Sun Pharma has fallen 35 per cent in the past four months.

At end-September, Lakshdeep’s stake in Sun Pharma stood at 1.46 per cent, valued at nearly Rs 21.9 billion at the closing price on September 28.  

“The share cover is monitored on a daily basis by the independent debenture trustee. In case the cover falls below 1.6 times, it needs to be restored to the initial share cover of 1.75 times within three trading days. Our comfort in this structure is primarily predicated on shares of Sun Pharma,” Iyer added.

Kotak MF’s exposure to Suraksha Realty has maturities spread between December 2018 and February 2019.