DHFL Crisis: Mutual Funds Face Another Hit Of ₹1,500 Cr In September

The mutual fund industry is staring at a possible loss of another ₹1,500 crore over the next month on investments in the debt papers of Dewan Housing Finance Corporation Ltd (DHFL).

The troubled DHFL has already defaulted on interest payments in August and expressed its inability to meet payment obligation till its debt restructuring plan submitted to banks is approved.

Investments of ₹1,479 crore in DHFL’s debt papers by nearly 80 mutual funds are coming up for repayment in September. Some of the prominent mutual funds whose investments are maturing include Kotak Mutual Fund, Axis MF, UTI MF, Reliance MF, Sundaram MF and Invesco MF.

Write-downs galore

Of these most of the mutual funds, including Reliance Mutual Fund and UTI Mutual Fund, have completely written down their investment while Kotak, Axis and Invesco MF did not respond to BusinessLine queries.

Sunil Subramaniam, Managing Director and CEO, Sundaram Mutual, said the fund house has an investment of ₹50 crore in DHFL debt papers maturing next month and the board has approved plans to use the option of side pocketing (which helps carve off the stressed investment separately for recovery at a later stage).

On Tuesday, DHFL said it has defaulted on ₹46.92 crore towards interest on secured NCDs and NCDs issued through a public issue for multiple tenors involving interest of ₹364 crore and principal of ₹1,060 crore. It also has defaults of ₹100 crore on its commercial papers.

The beleaguered NBFC has not been able to fulfil its obligations towards debt repayment in the recent past and there have been several cases of defaults on its commercial papers and bonds. It is estimated to be sitting on a debt-pile of over ₹90,000 crore.

MF investors turn jittery

Mutual fund investors have turned jittery after similar defaults by IL&FS, Zee Group and Reliance Capital in the last few months. The troubled corporates are in the process of selling their assets to meet debt obligations.

Meanwhile, the outflow from the credit risk fund of mutual funds that have exposure to the debt papers of troubled corporates has continued unabated and touched ₹11,514 crore in the last four months.

The assets under management of these credit risk funds have dipped 13 per cent to ₹70,377 crore in July from ₹79,644 crore logged in April.

Pankaj Pathak, Fund Manager (Fixed Income), Quantum Mutual Fund, said investors should keep away from bottom fishing in credit risk funds as the crisis in the debt market is not yet over and, indeed, is deep rooted.