Coffee Day group firms have sought two weeks from debenture holders exposed to the companies, people in the know have said.
Two of the group companies — Coffee Day Natural Resources (CDNL) and Tanglin Development — apprised the debenture holders of the recent developments and sought time to come back with a plan.
A debenture holder has the option to invoke and sell pledged shares if the promoter is unable to restore the security cover in accordance with terms of a debenture issuance. Selling of pledged shares by creditors could add to the selling pressure on Coffee Day Enterprises (CDEL).
On Wednesday, Brickwork Ratings downgraded CDNL and Tanglin Developments from A-minus to BBB, placing the entities on ‘credit watch with negative implications’.
The rating action is likely to lead to 3-4 per cent mark-to-market impact on some of the MF schemes exposed to Coffee Day entities. ICRA also placed the rating on CDEL’s term loans on ‘watch with negative implications’ while maintaining a BBB-plus rating.
The quality of security on these exposures has come under pressure following the sharp decline in the stock of holding company CDEL, which was pledged by promoters for these exposures.
Among the fund houses, DSP Mutual Fund (MF) has taken a 50 per cent haircut on its exposure to CDNL, which was a fully-owned entity of Coffee Day founder V G Siddhartha. The haircut led to a 1.3 per cent hit on the net asset value of DSP Credit Risk Fund, which held these debentures.
In the investor note, DSP MF said: “CDNL has asked for two weeks to come back with a concrete plan regarding the exposure.” A senior executive of another fund house also confirmed a communication from CDEL, seeking time and informing about the board changes.
Industry sources said other fund houses with exposures to the Coffee Day group were also considering haircuts on their exposures. “We are in talks with our trustees on the next course of action,” said a fund manager. “If rating agencies issue any sharp downgrade, we will anyway have to take a haircut as per the regulatory norm,” he added.
DSP MF added: “While we await the CDNL plan, an erosion in the value of cover merits a relook at the scheme’s exposure. Hence, we have taken 50 per cent haircut on our exposure.”
CDEL has dropped 40 per cent in two days following news of Siddhartha’s disappearance, and confirmation of his death on Wednesday. As of July 29, DSP MF’s exposure to CDNL stood at Rs 69 crore. Apart from the promoters’ pledged shares, the exposure was secured by a land parcel.
At June-end, BOI AXA MF’s exposures to CDNL’s debentures stood at Rs 16 crore; it is yet to take a call on haircut.
Siddhartha and his wife Malavika Hegde were directors in CDNL. According to a recent note by Brickwork, the company was primarily involved in raising funds and supporting other group entities.
Besides CDNL, debt papers of technology park developer — Tanglin Development — is the other Coffee Day subsidiary that MFs are exposed to. Indiabulls AMC had Rs 44 crore exposure to Tanglin Development as on June 28, 2019. MFs’ exposures to the group have reduced in recent months. At the end of March 31, their exposure to the three Coffee Day group entities stood at Rs 284 crore. At the end of June 28, it was at Rs 192 crore.