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Amid growing concerns over rising bad debt levels of corporates, market regulator Sebi has stepped up its vigil for mutual funds' exposure to distressed bonds, especially those downgraded by rating agencies.
After the Amtek Auto crisis, the exposure of some leading fund houses to downgraded debt securities of Jindal Steel and Power Ltd (JSPL) has come under the regulatory scanner and Sebi is looking into the detailed submissions made by the mutual funds in this regard, a senior official said.
Post Amtek Auto case, which came to light last year following huge redemption pressure in some mutual fund schemes, Sebi has asked all fund houses to immediately submit a detailed report to it as also their trustees about exposure of each of their schemes to any corporate debt bond facing a downgrade.
Besides, Sebi has already come out with a stricter set of corporate debt exposure norms for MFs, wherein it has capped the investment limit in bonds of a single company.
According to sources, almost all the fund houses have submitted reports to Sebi about the exposure to JSPL's debt papers and the regulator is examining the submissions.
The regulator is also checking whether the mutual funds have transferred instruments of JSPL from one scheme to another, they added.
Total exposure of mutual funds to JSPL's debt papers is estimated at more than Rs 2,500 crore. Individually, Franklin Templeton MF is said to have exposure of over Rs 1,600 crore, while that of ICICI Prudential MF is estimated at nearly Rs 500 crore.
Among other leading fund houses, Reliance MF has an exposure of about Rs 49 crore to JSPL.
JSPL shares have been under tremendous pressure in the recent past due to the company's high debt levels, but the plunge has deepened further over the last few days following a credit rating downgrade by Crisil on last Monday.
Industry analysts said the rating downgrade by Crisil, which has assigned a negative outlook on the company, may also result in decline in NAVs (net assets value) of mutual fund schemes with exposure to JSPL's debt papers.
Earlier, Sebi Chairman U K Sinha had also advised mutual fund houses to rely on their own risk assessment rather than depending on the grades assigned by credit rating agencies while picking portfolios.
Last year, JP Morgan MF got into trouble due to its exposure to debt securities of Amtek Auto.
JSPL, which is into diverse segments including steel, cement and power, said in a recent investor presentation that it is focussing on reducing working capital and options to reduce interest costs.
