MFs can only side-pocket debt exposure if it is downgraded to below investment grade, which is BBB-minus. There is lack of clarity on whether rating agencies, which also act as valuation agencies, will downgrade defaulting bonds to below-investment grade in absence of stressed valuations.
NBFCs have come under pressure as banks are showing limited willingness to extend the moratorium to them, as well as are showing reservations in extending liquidity to NBFC debt papers through targeted loan term repo operations or TLTRO. On Thursday, the first tranche of RBI’s TLTRO only saw bids worth Rs 12,850 crore as against Rs 25,000 crore on offer.
“In view of the nationwide lockdown and a three-month moratorium/deferment on payment permitted by the RBI, a differentiation in treatment of default, on a case-to-case basis, needs to be made as to whether such default occurred solely due to the lockdown or the loan moratorium,” Sebi
said in its circular.
The market regulator said if the delay in payment or extension of maturity is because of the RBI-permitted moratorium causing operational challenges in debt-servicing, valuation agencies may not consider the same as a default for the purpose of valuation.
The relaxations shall be in force, in-line with the moratorium, provided by the RBI.
Recently, debenture trustees on behalf of MFs and other bondholders had approached Sebi
to seek relaxation on the valuation norms.
“Some fund houses were concerned that markdowns in debt portfolios would hit net asset values, causing panic among investors, and redemptions,” said another fund manager.