Aditya Birla Sun Life MF side-pockets exposure to Essel Group company

Aditya Birla Sun Life Mutual Fund (ABSL MF) has created a segregated portfolio — commonly referred to as side-pocketing — for its investment in Essel Group company Adilink Infra & Multitrading which has gone sour. 

Three ABSL MF’s schemes — ABSL Medium Term Fund, ABSL Credit Risk Fund and ABSL Dynamic Bond Fund — had subscribed to Adilink’s debentures worth Rs 793 crore which were due in March 2020. The move to create a side pocket was triggered by Adilink’s failure to repay investors.

“On November 25, 2019, payments from Adilink were due to the minority investor as the minority investor had exercised a put option available to them. It has come to our knowledge that the issuer has not repaid the minority investor. We have taken this as a credit event and propose to create segregated portfolios for the Adilink exposure,” ABSL MF said in a communication to the investors of the schemes.

The three schemes had exposure between 3.7 per cent and 7.5 per cent of their assets under management (AUM) to Adilink’s debentures.  The fund house said Adilink’s failure to repay was on account of “extension of originally anticipated timelines for the monetisation of road assets”.

Creation of side-pocket involves carving out the assets that have gone bad from the core portfolio. The move helps protect the interests of existing investors if there is a recovery. Creation of a side-pocket involves carving out the assets that have gone bad from the core portfolio. The move helps protect the interests of existing investors if there is a recovery. 

ABSL MF is hopeful that it will be able to recover its dues from Adilink. “There are a few potential investors who are actively evaluating these road assets in parallel. We are looking to realise the best value for the entire portfolio of road assets (which include toll and annuity assets) and currently, the process is at different stages with different investors. Base case valuations done through reputed third-party vendors indicate that when the monetisation process is successfully completed for the portfolio, the entire exposure can be taken out,” the fund house wrote.

MFs get money back following share sale

Essel Group has made payments to ABSL MF, ICICI Prudential MF and HDFC MF following the stake sale in Zee Entertainment by the promoters last week. 

While ICICI Prudential MF’s exposure to Essel Group now stands at zero, ABSL MF and HDFC MF has still to recover some dues.

Sources said MFs with loan-against-shares exposure to Essel have largely managed to recover all the dues, even as investments in infrastructure ventures of the group continue to be in jeopardy.

"ICICI Prudential MF has received repayment of the total principal amount invested, along with the accrued interest thereon. Subsequently, as of date, none of the schemes of ICICI Prudential MF has any investment in debt instruments issued by the promoter group companies of ZEEL,” said a spokesperson of ICICI Prudential MF.

"Pursuant to the sale of shareholding of Zee Entertainment, Aditya Birla Sun Life MF has received repayment to the tune of Rs. 840 crore comprising the principal amount and interest accrued,"said a ABSL MF spokesperson. 

Meanwhile, in an investor communication, HDFC MF said it has “received a total of Rs 166.8 crore towards part repayment of the said NCDs and interest thereon from the issuer through the sale of certain listed equity shares comprising part of the collateral. The value of the residual pledged listed equity shares as of November 25 is Rs 144 crore."

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