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Even as HDFC Mutual Fund is working to reassure its investors over exposure to Essel Group companies, the fund house is facing a fresh concern on account of its exposure of over Rs 230 crore in Hazaribagh Ranchi Expressway Limited (HREL), which has defaulted on its debt obligations. The development has forced the fund house to take a mark down of 37 per cent on its investment and accrued interest.
Industry experts say that this mark down — erosion in value of the security — currently amounts to close to Rs 110 crore and this in turn would result in lower repayment for investors of the respective schemes till a full recovery by the fund house. HREL is a special purpose vehicle, a subsidiary of IL&FS Transportation Network Limited.
While HREL was downgraded to non-investment grade on January 24, 2019, India Ratings further downgraded the NCDs issued by HREL from ‘IND C(SO)’ to ‘IND D(SO)’ on Monday, April 15, 2019, after it defaulted on its payment obligations.
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On April 14, 2019, HREL failed to honour principal repayment of Rs 12 crore (of the total investment of Rs 49.5 crore) due to HDFC Short-Term Debt Fund, along with interest amount of Rs 10 crore due to all the six investee schemes of HDFC MF.
“Despite having adequate cash, HREL has defaulted on its payment obligations triggering a further downgrade in the credit rating of its NCDs,” noted the fund house in an update to investors on investments in HREL on April 16.
Following the default by HREL on its debt obligations, “We have taken an additional markdown of 12 per cent effective 15th April 2019 (over and above 25 per cent markdown taken on January 22, 2019), taking the total markdown to 37 per cent on prices provided by valuation agencies for January 24, 2019, the date on which HREL was downgraded to non-investment grade,” the fund house noted.
It further added that the fund house has also taken a markdown of 37 per cent on the interest accrued till date. “Going forward, we shall not be accruing interest on our exposures in HREL,” it said.
As of April 12, 2019, HDFC Mutual Fund had an aggregate exposure of Rs 232 crore, through six debt oriented schemes, to NCDs issued by HREL. The schemes include — HDFC Dynamic Debt Fund (Rs 81 crore), HDFC ST Debt fund (Rs 49.5 crore), HDFC Credit Risk Debt fund (Rs 42 crore), HDFC Hybrid Debt Fund (Rs 41 crore), HDFC FMP 1146D (Rs 10.5 crore) and HDFC Banking and PSU Debt Fund (Rs 8.5 crore).
While the fund house points in its note that the exposure to NCDs of HREL are backed by annuities from NHAI, it said that “the 13th annuity payment from NHAI, which was scheduled on 15th March 2019, has not been received due to operational delays by HREL..
The delay in receipt of annuity does not hamper the capability of HREL servicing the payment obligation of Rs 52.7 crore due on 14th April 2019 with the available cash of Rs 83 crore.”
