On 4th June 2019, DHFL has delayed interest payment on some of its outstanding bonds owing to which valuation agencies have bring down the value of its outstanding bonds by 75%. As per latest circular from SEBI, Mutual Funds which have invested in DHFL Bonds had to follow valuations provided by these agencies in case the bond is not traded. This has hit many debt funds that have exposure to DHFL bonds, and their NAV has dropped sharply.
This is first time when bonds have been marked down by sharp 75% in one go. This is surprising and we will have to wait to know why valuation agencies have taken such high markdown even when the rating has not changed.
AMCs with exposure to DHFL group: (Data as on April 30, 2019)
UTI, Reliance Nippon, Franklin India, Axis, L&T, DHFL Pramerica, DSP and Tata are AMCs, that have highest exposure to DHFL and its group companies. Some AMCs have exposure to its group companies – Aadhar Housing Finance, Avanse Financial Services, Wadhawan Global and Essential Hospitality. Most likely these bonds have not been effected due to delayed interest payment by DHFL. Total MF industry exposure to DHFL and its group companies is estimated at over INR 6,400 cr.
| Mutual Fund | Exposure in INR Cr. |
| UTI | 1,984 |
| Reliance Nippon | 1,182 |
| Franklin India | 545 |
| Axis | 409 |
| LnT | 392 |
| DHFL Pramerica | 231 |
| DSP | 214 |
| Tata | 198 |
| Sundaram | 169 |
| Baroda | 163 |
| HSBC | 160 |
| Kotak | 137 |
| Principal | 128 |
| LIC | 103 |
| BNP Paribas | 70 |
| Invesco | 63 |
| Edelweiss | 61 |
| BOI AXA | 58 |
| IDBI | 52 |
| JM | 49 |
| Aditya Birla | 40 |
| Mirae | 33 |
| Union | 27 |
| Indiabulls | 17 |
Impact on schemes NAV on 4th June:
Schemes of DHFL Pramerica MF have got impacted highest given their concentrated exposure due to fall in fund assets in last few months. Some schemes are yet to publish their NAV, hence this list may not have all the schemes that have exposure to DHFL bonds.
| Scheme Name | Exposure in portfolio (%) | Drop in Fund NAV on 4th June (%) |
| DHFL Pramerica Medium Term Fund | 37.4 | -53.0 |
| DHFL Pramerica Floating Rate Fund | 31.9 | -48.4 |
| Tata Corporate Bond Fund | 28.2 | -29.6 |
| Baroda Treasury Advantage | 21.2 | -17.2 |
| DHFL Pramerica Low Duration Fund | 20.1 | -16.6 |
| DHFL Pramerica Short Maturity Fund | 30.5 | -13.6 |
| BNP Paribas Medium Term Fund | 14.8 | -12.9 |
| Tata Medium Term Fund | 14.6 | -12.3 |
| JM Equity Hybrid Fund | 24.6 | -11.6 |
| BNP Paribas Corporate Bond Fund | 12.4 | -10.8 |
| JM Low Duration Fund | 19.0 | -10.2 |
| JM Income Fund | 13.2 | -9.6 |
| UTI Short Term Income Fund | 8.4 | -9.4 |
| UTI – Treasury Advantage Fund | 6.8 | -8.8 |
| Baroda Dynamic Bond Fund | 13.0 | -8.4 |
| Sundaram Short Term Credit Risk Fund | 9.2 | -7.1 |
| IDBI Credit Risk Fund. | 9.5 | -7.1 |
| IDBI Ultra Short Term | 8.7 | -7.1 |
| LIC MF Saving Fund | 7.2 | -6.1 |
| JM Short Term Fund | 7.3 | -5.5 |
| Axis Regular Saver Fund | 7.3 | -5.4 |
| JM Ultra Short Duration Fund | 7.1 | -5.2 |
| DSP Bond Fund | 5.2 | -5.2 |
| UTI Bond Fund | 6.6 | -5.0 |
| UTI Dynamic Bond Fund | 5.9 | -4.7 |
| DSP Strategic Bond Fund | 5.2 | -4.4 |
| Tata Treasury Advantage Fund | 3.8 | -4.1 |
| DHFL Pramerica Credit Risk Fund | 4.1 | -3.6 |
| UTI Credit Risk Fund | 3.6 | -2.9 |
| UTI Ultra Short Term Fund | 6.9 | -2.8 |
| L&T Credit Risk Fund | 6.8 | -2.5 |
| Reliance Strategic Debt Fund | 4.2 | -2.5 |
| L&T Low Duration Fund | 9.4 | -2.5 |
| L&T Money Market Fund | 2.6 | -2.2 |
| Reliance Low Duration Fund | 6.7 | -2.0 |
| Kotak Medium Term Fund | 2.4 | -1.9 |
| DSP Low Duration Fund | 1.8 | -1.5 |
| Mirae Asset Saving Fund | 4.4 | -1.2 |
| UTI Medium Term Fund | 5.7 | -1.0 |
| Reliance Ultra Short Duration Fund | 3.1 | -1.0 |
| Reliance Prime Debt Fund | 9.4 | -0.9 |
| Franklin India Income Opportunities | 3.4 | -0.7 |
| Reliance Credit Risk Fund | 0.7 | -0.1 |
What should investors do?
Given the steep 75% valuation drop in bond valuation and sharp fall in NAVs across funds, investors are left with no option but to stay invested in these funds and hope for recovery. DHFL has communicated to news channels that the delay in payment shall not be construed as default as there is still a grace period of 7 days and DHFL is committed to pay the interest in next seven days. If this happens and valuation agencies agree, then bonds shall be revalued and NAV might come back to earlier levels. It can be expected that RBI may intervene soon, a default by such huge housing finance company may further aggravate the NBFC crisis and it will be too big a cost to let it spreading over the entire financial market.
It’s interesting that the Reliance funds fell only 2% or less inspite of having the 2nd largest exposure.
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