DHFL impact: Partial relief for some MFs; BNP Paribas, Reliance get dues

Dewan Housing Finance Corporation (DHFL) has settled some of its dues pending with mutual funds (MFs). According to people in the know, BNP Paribas MF on Friday received payment towards the zero coupon bonds of DHFL.

The dues were pending since Tuesday (June 4), when these papers matured. However, sources say that interest payments towards bonds maturing in 2021 are still due.

Meanwhile, Reliance MF has also received payments from DHFL that were pending since Tuesday.

These receipts would be a source of relief for the fixed maturity plan (FMP) investors of Reliance MF, which had to bear a cut on the redemption amount on Thursday.

"The fund house will pay proportionately to all the unit-holders of FMPs that matured on Thursday (June 6) in the next two working days," said people privy of the development.

Five FMPs of Reliance MF -- which had exposures to DHFL in the range of 6-10 per cent -- matured on Thursday. After DHFL was unable to make its interest payments on Tuesday, the net asset values of these FMPs fell in the range of 6-10 per cent.

The interest miss by DHFL led to the MF industry marking down their debt exposures to the firm by 75 per cent. The steep markdown was in-line with the new norms laid down by the Association of Mutual Funds India.

The MF industry has been exploring ways to contain the DHFL risk from spilling over. Some of the fund houses have already stopped accepting fresh flows in schemes exposed to DHFL. The move is aimed at preventing undue advantage to new investors post the NAV markdown in the affected schemes.

Overall, more than 150 MF schemes have exposures to DHFL, with over Rs 5,000 crore of investor money riding on these exposures. At an individual level, several schemes have sizeable exposures to DHFL. According to a Morgan Stanley note, 105 schemes had more than 5 per cent of the scheme assets exposed to DHFL debt. This amounted to Rs 3,040 crore of investor money. Meanwhile, 24 schemes had more than 10 per cent exposure and three had more than 30 per cent exposure to DHFL's debt papers.  

Among other fund houses, Tata MF has already announced its plans to side-pocket some of its schemes, which are affected due to DHFL exposures.

On Friday, UTI MF increased the markdown on its exposures to DHFL from 75 per cent to 100 per cent. The fund house, in its note, said that the recovery efforts of DHFL could get delayed as it anticipates legal proceedings by lenders and also the possibility of early redemption clauses getting invoked by lenders.

The fund house also put exit loads in exposed schemes -- UTI Treasury Advantage Fund, UTI Ultra Short Term Fund, UTI Short Term Income Fund, UTI Dynamic Bond Fund and UTI Bond Fund -- to deter to speculative activity in the funds.