Essel Group makes partial payment to mutual fund houses

Subhash Chandra-owned Essel group has made part payment of close to Rs 2300 crore  as (per industry estimates) against its outstanding debt.

As per data provided by Value Research fund houses had a collective exposure of Rs 5,463 crore to debt papers of Essel group as on August end 2019.

The spokesperson of ICICI Prudential Mutual Fund has confirmed that they have received a sum of Rs 434 crore out of the total debt exposure of Rs 739 crore. The remaining outstanding stands at Rs 366 crore. They have recovered 60 per cent of their outstanding.

Aditya Birla Sun Life Mutual Fund had also confirmed receipt of payment of Rs 760 crore.  Aditya Birla Sun Life Mutual Fund had the highest exposure of Rs 2,800 crore as per the data provided by Value Research.

HDFC Mutual Fund has also received Rs 580 crore. The fund house has not confirmed the figures yet.

Fund houses had entered into standstill agreements with the promoters of Zee Entertainment to not sell the pledged shares of the company even when some of the Essel group companies had defaulted on its payments. The liquidation of Zee Entertainment shares of about Rs 200 crore by mutual funds resulted in a price drop of more than 30 per cent. Therefore, more than 40 lenders who had lent more than Rs 13,000 crore to Essel Group decided against exercising the option of selling shares to recover the money.

Mutual funds had faced severe criticism for the same and Securities and Exchange Board of India (Sebi) has come up with regulations where the regulator has asked fund houses to increase the pledged shares cover by at least four times against investments by mutual fund schemes having credit enhancement backed by equities directly or indirectly.       

HDFC Mutual Fund and Kotak Mutual Fund could not make full payments to some of their fixed maturity plans, which had matured before September. HDFC Asset Management Company took a hit of Rs 500 crore to provide an exit option to investors in some of these FMPs.

Essel group has entered into a share sell agreement with Invesco Oppenheimer Developing Markets Fund to buy up to 11 per cent stakes in Zee Entertainment from its promoters for a total consideration of Rs 4,224 crore. The group has completed the first tranche of sale today.

DSP Mutual Fund had also received full payment from the troubled mortgage lender Dewan Housing Finance (DHFL). "This is certainly a good news for investors who had stayed invested in the funds which had exposure to securities of this group," says Vijai Mantri, Chief Investment Strategist and Co-promoter, JRL Money.