Kotak MF defends move to block FMP money on Zee woes, says it’s in investors’ interest
Kotak MF said there are seven other fund houses which are stuck in the Zee Group’s debt crisis.
The fund house said there are seven other fund houses which are stuck in the Zee Group’s debt crisis. The mutual fund industry has a debt exposure of around Rs 7,000 crore to the Zee Group, said Lakshmi Iyer, Head of Fixed Income at Kotak AMC.
“The ballpark figure for total outstanding debt is in the region of Rs 13,500 crore. Mutual fund holding in a combination of open-ended and close-ended schemes put together is at close to Rs 7,000 crore,” she told ETNow.
The debt crisis in the Subhash Chandra-promoted Zee Group returned to haunt the domestic mutual fund industry after Kotak Mutual Fund announced a delay in full redemption in as many as six of its fixed maturity plans and HDFC Mutual Fund, the country’s largest, said it would roll over one of its FMPs, which is coming up for redemption on April 15.
Investors in six FMPs of Kotak Mutual Fund maturing between April 8 and May end will not be able to redeem all their units due to a delay in recovering money lent by the schemes to two Essel Group companies, Edisons Utility Works and Konti Infrapower & Multiventures, the fund house said on Wednesday.
Industry watchers say more fund houses holding Zee Group debt and facing redemption deadline in the next three months could delay payment. This is the first time investors in FMPs are not getting paid the full amount on maturity and it reflects the crisis facing some of the country’s leading companies saddled with debt and unable to refinance on easier terms due to liquidity pressures.
Of the total Zee Group exposure of the mutual fund industry, around Rs 1,500 crore is in FMPs and the rest in open-ended debt mutual fund schemes. Kotak and HDFC Mutual Fund hold most of the debt in FMPs. It holds Zee shares as collateral against this exposure.
The fund houses hold collateral in the form of shares of Zee Entertainment. Its shares suffered a severe beating in January leading to breach of top-up covenants. But most fund houses, including Kotak and HDFC, decided against selling shares to recover money and agreed to a stand-still agreement with Zee/ Essel promoters till September 30.
Fund houses have told investors that the promoters of the companies would sell stakes in key companies including Zee Entertainment and repay debt for which they had sought six months.
Iyer said the decision to give time to Zee was in investor interest. “We had the choice to invoke the shares and realise the entire money back for investors. That could have been a possibility. It would not have made headlines, but it may not have protected the interests of unit holders as one would not be 100 per cent certain how much of it I could have recovered from the sale of shares,” she said.
Kotak and HDFC Mutual Fund will not have to create a side pocket since this is a fixed maturity plan (FMP) and no fresh money will flow into this scheme.
Two FMPs of Kotak have matured and the company has returned the principal with some return, minus the exposure to the Zee group. Iyer said the portion of Zee exposure has been retained and will be returned to investors in principal plus accrued interest on or before September 30.
Zee Group has asked for some time allowance to sell the company’s stake, and some part of that money will come to the promoters in the proportion they hold, Iyer said.
“Of that proceeds, debt will be repaid to us, that is the Rs 13,500 crore of debt that I am talking about. Our share in that is a very small portion, less than 2.5 per cent,” she said.
Zee has time till September 30. “We do not intend to keep anything with us. We have given a time allowance of September 30 and we are very happy to give the money back much before that if that happens,” Iyer said.