UTI MF schemes receive payments for side-pocketed Zee Learn exposure

CARE Ratings in its note observed according to the structure, ZLL was to pay the obligations related to NCDs at least 30 days before the due date
UTI Mutual Fund (MF) has received the dues from Zee Learn (ZLL) after the fund house had side-pocketed the exposure to the Essel Group company last week.

In an exchange note, ZLL disclosed that the balance amount was paid to UTI MF by Zee Entertainment Enter-prises (ZEEL) and that “they were in the process of acquiring the non-convertible debentures (NCDs) subject to necessary paperwork and legal approvals.”

The fund house had decided to segregate its exposure to ZLL after CARE Ratings downgraded the NCDs to below investment grade on the likelihood of default on NCD payments on the maturity date of July 8.
As of July 6, UTI Credit Risk had 9 per cent (Rs 40.77 crore) of its assets exposed to the Essel Group company. The medium-term fund had 3.02 per cent exposure (Rs 3.4 crore).

CARE Ratings in its note observed according to the structure, ZLL was to pay the obligations related to NCDs at least 30 days before the due date, and in case of payment shortfall, ZEEL would pay the balance amount into the debt service reserve account (DSRA) at least seven days before the due date.

As a result of non-adherence to the structure, and non-funding of the shortfall in NCD obligations, the rating agency said it would no longer give the benefit of credit enhancement to the NCDs. The rating was revised from AA-credit enhancement to the revised rating of B with negative outlook.

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