HDFC Asset Management Company said in a regulatory filing that it has decided to provide a "liquidity arrangement" to certain fixed maturity plan (FMP) schemes of HDFC Mutual Fund with exposure to the Non-Convertible Debentures (NCDs) issued by two subsidiaries of the stressed Essel group - Edisons Infrapower & Multiventures Private Limited and Sprit Infrapower & Multiventures Private Limited. The fund house has decided to buy Rs 500 crore worth of NCDs from the debt schemes that have exposure to these securities, The Economic Times reported.
The beleaguered Essel group has to repay debt worth Rs 1029 crore by the end of September this year. Of this, bonds and commercial papers worth Rs 940 crore are maturing in the next two months, fanning concerns of a default. The liquidity move by the fund house removes uncertainty among investors, who were concerned that they might not get back their entire investments in case the Subhash Chandra-controlled group failed to repay lenders in time.
"This liquidity arrangement shall only apply in case of FMP schemes (having an exposure to the NCDs issued by the Essel Group), which have either already matured in the month of April, 2019 and/or will mature until the standstill arrangement entered into by the company with Essel Group is in force," the asset management company informed the exchanges.
The "standstill arrangement" mentioned above refers to the formal agreement signed by the Essel group and its lenders - including mutual funds and NBFCs - in early February to get time till September to de-leverage or pare its debt. The agreement is with lenders that had taken pledged shares of the group's listed entities, namely Zee Entertainment Enterprises and Dish TV India.
Most lending by AMCs is against promoter-holdings in Zee, which had been taking a beating in the stock market since late December. Typically, such a situation warranted lenders demanding additional security or selling off their holdings. However, on January 25, when Zee's share price dropped from Rs 434 to Rs 280, the lenders took the unprecedented and controversial step of collectively deciding to hold on to the company's stock to prevent further value erosion and giving the company additional time for debt servicing. After all, Chandra had assured the lenders that he would repay lenders in full by selling half of his stake in the group's flagship Zee Entertainment Enterprises. Mutual funds collectively held Rs 7,000 crore worth of Essel papers.
In April, when some FMPs of Kotak and HDFC mutual funds came up for maturity, HDFC AMC had rolled over one of its FMP by 380 days, while Kotak Mutual Fund repaid investors minus their holdings in Essel Group companies. The move did not go down well with the Securities and Exchange Board of India (SEBI), which questioned the legal standing of the February agreement.
Earlier this month, the capital market regulator sent legal notices to Milind Barve, managing director of HDFC Mutual Fund, some top officials and HDFC Trustee Co for extending the maturity of its FMP. While at least eight fund houses hold Essel papers in various schemes, SEBI had sent show cause notices to only to HDFC Mutual Fund and Kotak Mutual Fund last month because their FMPs came up for maturity.
Reacting to the news of HDFC AMC's planned liquidity manoeuvre, the share price has dived nearly 7 per cent intraday.