After the exposure of Franklin Templeton Mutual Fund side-pocketed Vodafone Idea, three weeks have passed. On Monday, Nippon India Mutual Fund and UTI Mutual Fund separately made an announcement of the side pockets in three funds and five funds respectively. These funds had been exposed to the debt of the failing telecom giant. This announcement was made because of the downfall of the Vodafone Idea debt instruments.
According to the announcement of the UTI Mutual Fund, the creation of side pockets will be done in five funds. These funds are – UTI Credit Risk Fund, UTI Bond Fund, UTI Medium Term Fund, UTI Regular Savings Fund, and UTI Dynamic Bond Fund.
On 14th February, the market value of Vodafone Idea in the above-mentioned funds was more than the whopping amount of Rs 180 Crore. The debt of Vodafone Idea had been the highest in UTI Credit Risk Fund. Then came UTI Bond Fund (3.91%), UTI Regular Savings Fund (2.58%), UTI Dynamic Bond Fund (2.48%) and UTI medium-term Fund (0.69%).
According to the announcement of the Nippon India Mutual Fund, Nippon India Credit Risk fund, Nippon India Strategic Debt fund, and Nippon India Hybrid Bond fund will be creating side pockets.
If we go by the disclosures, the face value of Vodafone Idea debt was Rs 227.30 crore on February 16th, 2020. In Nippon India Hybrid Fund, the share of Vodafone Idea debt market value was the highest, almost up to 3.15%. Then came the Nippon India Credit Risk fund (0.56%) as well as the Nippon India Strategic Debt fund (0.37%).
Nippon, as well as UTI, will create side pockets from 17th February 2020 onwards. They will also be needing the approval of their respective Board of Trustees. As the side pockets are effective now, the schemes now will have different portfolios - one for a good portion and the other for bad portion. The good portion comprises of investment-grade bonds while the bad portion consists of the downgraded bond of Vodafone Idea. Within the next ten business days, fund houses will be enlisting the separate portfolio units on the stock exchange.
In the above-mentioned schemes, a suspension of the processing of redemption and subscription will be done on 17th February 2020. This suspension will continue till acquiring the approval of the trustees. This suspension will be taking place according to the regulatory guidelines.
This suspension will also be applied to additional subscriptions, fresh subscription, subscription by way of SIPs, switch-in, Systematic Transfer Plan or STP, switch-outs, withdrawal via Systematic Withdrawal Plan.
If we go by the rating of CARE, then we will see that there have a down gradation of the Vodafone Idea debt by Rs 56000. The rating shifted from BBB- (BBB minus) to BB- (BB minus).
The telcos have been ordered by the honorable Supreme Court for the clearance of AGR dues. The deadline for this purpose is 17th March 2020. The Supreme Court has also come up with specific instructions for the Department of Telecommunications or DoT. This instruction emphasizes upon the withdrawal of executive orders upon no-coercive action against telecom players who have unpaid AGR dues.
Vodafone's Idea is going through a huge financial crunch. So it has offered to pay just Rs 3500 crore out of the whopping amount of Rs 50000 crore. The downgrading ratings had a profound impact on the financial support which VIL had been enjoying from the promoters. The promoters, for instance, Aditya Birla Group and Vodafone Plc. This has put immense pressure upon this telecom brand.
Apart from this, further delay in the monetization of its tower business located in Indus Towers Limited will also put pressure on the liquidity profile of Vodafone Idea. Few more factors put a strain on the company, such as technology obsolescence risk, the decline in the trend of subscriber base, elevation in the debt level, risk.
Because of cut-throat competition, the company has experienced a fumble in its operating system. Hence, intense competition will remain the most significant factor affecting VIL.
Another fund house that has Vodafone Idea exposure is Aditya Birla Sun Life Mutual Fund. Its four schemes had the market value worth Rs 500 crore. Earlier the Board of Trustees of Franklin Templeton Mutual Fund gave a thumbs up for the creation of separate portfolios in all the six schemes. These schemes are – Franklin India Dynamic Accrual Fund, Franklin India Low Duration Fund, Franklin India Credit Risk Fund, Franklin India Ultra Short Bond and Franklin India Income Opportunities Fund.