JP Morgan seeks investors nod to segregate Amtek-linked funds

American fund house JP Morgan Mutual Fund today said it is seeking approval from unit holders of its two schemes worth Rs 200 crore that are exposed to troubled auto component maker Amtek Auto's debt papers, with a view to segregate the illiquid asset from other investments.
The approval would help lift curbs on redemptions from two JP Morgan's debt schemes - short-term income fund and India treasury fund, the fund house said in a statement.
"We are seeking unit holders' approval for a segregation of the illiquid asset which, if effected, can allow for the gating (restricting redemptions) to be lifted, providing unit holders of the schemes with as much liquidity as possible," JP Morgan said in a note.

These schemes have an exposure to secured redeemable non-convertible debentures issued by Amtek Auto, currently illiquid in the market owing to credit concerns of the issuer.
Last month, JP Morgan restricted redemptions from the schemes after its NAVs (net assets value) declined due to its exposure to Amtek's debt papers worth Rs 200 crore.
The decline in NAVs was triggered after a rating agency withdrew its rating on these debt instruments, after rating them quite high earlier.

The fund house said the unit holders are being given a seven-day notice to vote on the proposed segregation of the illiquid asset with effect from September 28 and the decision would be made by a simple majority.

"As a result of proposed segregation, NAV of existing units in the schemes would drop by the value representing the illiquid segregated asset and all unit holders will receive proportionate units to reflect their interest in the value of the segregated asset," it said.
JP Morgan also said it would continue to take all steps in pursuing satisfaction of Amtek's obligation under the bonds as well as any other means of receiving cash value for these investments in the best interest of the unit holders.
Besides financial problems, Delhi-based Amtek has also been facing probe by Sebi for alleged share price manipulation at its subsidiary Castex Technologies with role of banks, MFs and rating agencies also coming under the scanner.

Over a dozen banks have over Rs 26,000 crore exposure, mostly unsecured, to Amtek Group, which had about Rs 20,000 crore revenue last fiscal year. It needs an immediate liquidity of Rs 800 crore to redeeem foreign bonds. But banks have ordered a forensic audit of the books of the company before deciding on their future course of action.
Amtek entered the troubled waters after Castex was put under a Sebi probe for allegedly rigging share prices.
Exposure to Amtek's debt papers has also created ripples in mutual funds and other market segments.