Icra Tuesday placed ratings of six mutual fund schemes "under watch with negative implications" due to their exposure to debt-ridden Infrastructure Leasing & Financial Services (IL&FS).
The schemes under watch are HDFC's and UTI's banking as well as PSU debt funds, UTI's bond and dynamic bond fund, Aditya Birla Sun Life's short-term opportunities fund and HDFC's short-term debt fund, the rating agency said in a statement.
The rating action takes into account the deterioration in the credit quality of the underlying investments of these schemes driven by their exposure to special purpose vehicle (SPV) of IL&FS.
"Icra will continue to monitor the portfolios of these schemes regularly and take appropriate rating action as and when required," it said.
Icra noted that these six schemes have exposure to IL&FS SPV -- Hazaribagh Ranchi Expressway or Jharkhand Road Projects Implementation Company or Jorabat Shillong Expressway.
The default risks by various SPVs have increased given the recent communication by their management to trustees expressing to stop future repayments citing their interpretation of an order given by National Company Law Appellate Tribunal (NCLAT) on October 15, 2018.
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Further, in January this year, two SPVs demanded a refund of the debt payment executed by them post October 15, 2018 from their trustees.
In case of delays in honouring its obligations by SPVs, the ratings for these SPVs are likely to be downgraded, Icra said. This move would impact the credit score of the mutual fund schemes having exposure to these SPVs, it added.
"Despite a ring-fenced structure and adequate cash flows to service the debt obligations, the SPVs have asked the trustees to stop debiting the SPVs escrow account towards its future obligations," Icra noted.
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