MFs’ collateral declines as shares of ADAG firms tank

Franklin Templeton, Indiabulls MF & DHFL Pramerica MF have ~1,418-cr exposure

Mutual funds (MFs) led by Franklin Templeton, which has the highest exposure of ~1,244 crore through its debt schemes in the promoter entities of Anil Ambani group companies, will have to either seek higher collateral by way of topping-up of shares from promoter entities or risk lowering values of their schemes.

According to data from Value Research, mutual funds’ exposure to the debt papers of Anil Ambani’s Reliance group’s promoter entities — Reliance Infrastructure Consulting & Engineers, Reliance Big Entertainment and Reliance Big — stood at ~1,418 crore as on December 31, 2018.

These Reliance group companies had borrowed by putting group firms’ listed shares as collateral.

The share prices of Reliance Infrastructure fell by 32 per cent on Wednesday in which promoter entities hold almost half of the equity. Of this, 84 per cent of the stake is pledged to funds and lenders. Similarly, other group companies’ shares also declined, sending a wake-up call to mutual funds.

An e-mail sent to Reliance group seeking a comment did not elicit any response.

“The cash top-up available in these transactions was used to reduce outstanding exposure and the transactions remain adequately covered. We continue to engage with the company,” a Franklin Templeton spokesperson said. According to sources, Indiabulls MF this week used the cash topup available to reduce its outstanding exposures to ~14 crore from ~25 crore.

“Our exposure in the case of Reliance Big Entertainment is secured primarily by collateral of equity shares of Reliance Capital. Our outstanding exposure has already been

reduced in the last few days by utilising existing cash in the structure to retire over 40 per cent of the debentures. We are comfortable with our security cover at this point of time,” a spokesperson for DHFL Pramerica MF said.

The fall in share prices of Anil Ambani group companies was triggered by the news that the group’s telecom company Reliance Communications (RCom) will file for insolvency at the National Company Law Tribunal (NCLT). The Supreme Court is expected to hear a petition filed by Ericsson, one of the operational creditors, on February 12.

Franklin Templeton MF held its Reliance group exposure in five of its schemes — Franklin India Low Duration Fund, Franklin India Short Term Income, Franklin India Credit Risk Fund, Franklin India Dynamic Accrual Fund and Franklin India Income Opportunities Fund – as on December 2018.

DHFL Pramerica MF’s exposure stood at ~149 crore, while Indiabulls MF’s exposure was below ~25 crore as on December 31, 2018. Analysts said the sharp fall in share prices of Anil Ambani group companies could mean that the collateral may need to be enhanced.