‘Top 10 MFs have R67k-cr exposure’

Mumbai, June 21: The top 10 mutual fund houses have an exposure of R67,000 crore in the top 500 companies, ratings agency India Ratings & Research said on Tuesday.

In its report on ‘Refinancing Risks: top 500 Corporate Borrowers’, India Ratings also suggests that exposure in the stressed category is negligible at just 0.3% for the top 10 mutual fund houses.

The report said, “Based on our analysis, 45% or R30,200 crore is in the HER (high ease of refinancing) category, whereas MER (medium ease of refinancing) and ERR (elevated risk of refinancing) categories account for 51% and 4%, respectively.”

The assessment parameters for MER are: the corporate has strong credit metrics, strong cash and liquid investment to cover debt obligation and financial charges and strong parentage among others.

For ERR, the parameters are: weak and deteriorating credit metrics, limited financial flexibility of sponsors and present in highly leveraged sectors such as metal and mining, infrastructure, construction and real estate.

Stressed has been classified as default or imminent default by rating agencies.

“The top 15 corporates account for around two-thirds of the total exposure by all 10 fund houses, of which six are in MER and the rest nine in the HER category. Five fund houses — Reliance Capital Asset Management (Reliance Mutual Fund), ICICI Prudential Life Insurance Company Ltd, Birla Sun Life Asset Management Company, Templeton Asset Management India Pvt Ltd and UTI Asset Management Company — account for 75% of the investments in the top 500 corporates by the top 10 fund houses,” the report said.

Ind-Ra also believes it will be difficult for leveraged corporates to obtain additional funding from capital market sources even at a higher cost.

In March, Franklin Templeton Asset Management Company had completely exited its exposure towards Jindal Steel and Power after rating agencies downgraded their rating on bank facilities and debt programmes.

In August last year, JP Morgan Mutual Fund faced a problem due to its exposure to debt securities of Amtek Auto and had restricted redemption from two of its debt schemes — short-term income fund and India Treasury Fund. The move to stop redemption came in the wake of a decline in NAVs of the schemes which had a collective exposure of about R200 crore to the auto ancillary player.