Reliance Nippon Life Asset Management Company (RNAM) has granted additional time to Reliance Home Finance (RHFL) to fulfill its principal payment obligations, after the latter was only able to make the interest payment on Friday. Some of the company’s non-convertible debentures (NCDs) were maturing on the day.
The move follows Ajay Tyagi, chairman of the Securities and Exchange Board of India (Sebi), taking an adverse view of ‘standstill’ agreements between promoters and mutual funds (MFs), during its recent board meeting.
People in the know said the regulator was likely to probe whether the best interests of unitholders were kept in mind while granting such an extension.
Sources added that the fund house has received additional security cover from the housing finance company (HFC) and also got the coupon rate (for balance payments) increased to 14 per cent, compared to 9 per cent earlier. “Both the quality and quantum of the cover have been increased,” said a person privy to the development.
Earlier, the security cover provided by the HFC was 1.1 times the standard receivables —a standard practice in case of non-banking financial companies, said industry sources.
“RHFL has paid the interest that was due, and maturity of the said instrument has been extended to October 31, 2019, with additional cover and coupon,’ the fund house said in a note.
Meanwhile, RNAM took an additional markdown on its exposure to RHFL, in line with regulatory guidelines, after extension of the NCDs. From 55 per cent, the markdown has been increased to 75 per cent. It will impact 19 schemes belonging to the fund house, including Reliance Ultra Short, Credit Risk and Strategic Debt.
The three schemes were exposed to the maturing NCDs.
The impact will be in the range of 0.5-2.0 per cent, depending upon each schemes’ exposure levels to RHFL’s debt papers, according to the note.
“These instruments were earlier marked down, being rated ‘C’. In line with the latest development and regulatory guidelines, we have further marked down the securities issued by RHFL,” the fund house said in its note.
The MF industry’s overall exposure to RHFL’s debt is estimated at Rs 800 crore as on May 31, 2019. Half of this is accounted by RNAM’s exposures. According to industry sources, only RNAM's schemes had exposure to NCDs supposed to mature on Friday.
In its exchange disclosure, RHFL said: "The extension of maturity has been made purely to address the timing mismatch in receipt of proceeds from the ongoing monetisation of retail asset pools of the company. RHFL has already monetised over Rs 5,000 crore of retail assets, and will continue to do so to meet its debt servicing obligations."
The company further pointed out that the current market conditions have frozen fresh lending to private sector firms since the past nine months.
In April, CARE Ratings downgraded Rs 17,300 crore of various debt instruments and facilities of RHFL. The firm called these downgrades untimely and uncalled for, and said there was no adverse change in its operational parameters since the last rating action.
The long-term debt programme of the company was downgraded to ‘D’ or default grade, while others were downgraded to ‘C’.
Reliance Capital (RCap), the financial arm of the Anil Ambani group, is a co-sponsor in the AMC and the parent company of RHFL. However, RCap is expected to soon complete its 42.8 per cent stake sale to its Japanese joint venture partner Nippon Life as part of its asset monetisation plans.
Earlier this month, auditor Price Waterhouse & Co had resigned as statutory auditor of both Reliance Capital and RHFL citing lack of “satisfactory” response from them during its audit of the 2018-19 financial results. RHFL appointed Dhiraj & Dheeraj as its auditor on Friday. Both companies are yet to announce their Q4 results.