Mutual funds have an exposure of Rs 5,710 crore to various Essel Group companies through 133 schemes, increasing the risk for investors, due to the high debt levels of the Subhash Chandra-led group and its inability to repay money borrowed from fund houses. Aditya Birla Sun Life Mutual Fund has the maximum exposure to Essel group at Rs 1,755.7 crore, followed by HDFC Mutual Fund at Rs 1,156 crore, according to data from Value Research.
Earlier this week, Kotak Mahindra Asset Management and HDFC Mutual Fund said investors in some of their fixed maturity plans (FMPs), will not be able to redeem all their units, due to delay in recovering money lent to the Essel Group companies.
The group comprises the listed Zee and Dish TV besides unlisted entities including Sprit Infrapower and Multiventures, Essel Lucknow Raebareli Toll Roads, Essel Infraprojects, ARM Infra and Utilities, Asian Satellite Broadcast and Edisons Infrapower besides others.
Of the 133 mutual fund schemes, 89 are close-ended and a majority of these will come up for redemption in the next two years, while the rest will mature in 2022. Of the total Rs 5,710 crore, Rs 1,619 crore or about 28 per cent is held in these close-ended schemes and the remaining is in open-ended schemes, as per Value Research. A total of 19 close-ended schemes of HDFC Mutual Fund will come up for redemption in the next five to six months.
For investors, the risk is lesser in close-ended schemes because even if the money does not come to investors on the date of the fund closure, it will be disbursed at a later date. This is the case with the schemes of Kotak and HDFC, where payments have been postponed as fund managers have decided not to sell the shares of Essel group companies pledged with them.
In open-ended schemes, investors receive the value on the date of the redemption. Eight fund houses hold Rs 4,091.6 crore in open-ended schemes with exposure to Essel group companies.
These eight fund houses had invested in instruments of Essel-group promoted companies, backed by shares of Zee. However, on January 25, when Zee's share price dropped from Rs 434 to Rs 280, the lenders collectively decided to hold on to the company's stock and not sell it to recover the dues as that would hammer the stock further and erode the scrip value. Chandra has sought time till September 2019 to repay debts. These fund houses will have to postpone redemption in other schemes, too, until Chandra is able to fulfil his promise.