UTI MF increases mark- down its debt exposure to DHFL

UTI Mutual Fund has increased the mark-down in terms of its debt exposure to DHFL from 75% to 100%. The fund house has also introduced an exit load for five fixed income schemes to help safeguard the interests of existing investors. Data from Value Research reveals that in April 2019, UTI MF had an exposure of over Rs 1,200 crore to DHFL, across schemes.

DHFL had failed to repay interest and principal of approximately Rs 1,100 crore due on June 4, 2019. A press release by UTI MF stated, “As per the standard haircut table for sub-investment grade debt securities which has been provided/finalized by valuation agencies (CRISIL and ICRA) and AMFI, UTI MF had taken a 75% markdown to DHFL debt securities in the schemes that have an exposure to DHFL.”

CRISIL, ICRA and CARE downgraded the rating on the commercial paper (CP)/non-convertible debentures (NCD) of DHFL to ‘D’ on June 5, 2019, owing to the delay in debt servicing due to inadequate liquidity, modest capital position and modest earnings. The rating revision takes into account the recent instance of delay in servicing of obligations with respect to some of the non-convertible debentures by DHFL due to prolonged liquidity stress.

“In light of the above development UTI MF anticipates that there would be enhanced pressure and legal action on DHFL from all creditors, including exercise of early redemption clause and legal options by various lenders. This is expected to further delay the recovery efforts of the company in disposal of its assets in an orderly manner.

Furthermore, there is no secondary market for such securities in the current scenario. Considering the high level of uncertainty as to recovery timelines and value, UTI MF has increased the markdown to DHFL debt securities from 75% to 100% in the schemes which has an exposure to DHFL. If there is any recovery in future, the provision will be written back to the schemes on actual receipt basis,” UTI MF said in the press note.