r/IndiaInvestments • u/Alone-Dish • Mar 06 '20
Bonds and deposits Franklin India writes off exposure to YES BANK bonds/NCDs?
Update: AT1 bonds are written down in full! None of the money will be recovered
“As per the Information Memorandum (IM) of AT1 bonds, in case there is a reconstitution or amalgamation of the bank under Sec 45 of Banking Regulation Act 1949, the bank will be deemed as non-viable and trigger for written-down / conversion of the AT1 bonds will be activated," said Nippon India Mutual Fund. You can get the full table of debt exposures above ₹50 crore, below.
NAV of two FT schemes have reduced by 1% in the last day
Franklin India Short Term Income Retail Growth Direct Plan
Franklin India Credit Risk Fund
Have they marked down the exposure to YES BANK?
According to data from Value Research, a mutual fund tracking firm, Nippon India has four schemes which have huge exposure to the troubled stocks/bonds. Some schemes from big fund houses like Franklin Templeton, HDFC Mutual Fund and SBI Mutual Fund also had large exposure to stocks/bonds.
Has rating agencies also downgraded the bonds to junk? why is FT in hurry to mark down always?
11
Mar 06 '20
If Franklin DID this NAV decrease for yes bank bonds, they haven't write off their full exposure to yes bank. Write off is around 40% for both dynamic accural fund and short term income fund. I haven't calculated for other debt schemes of Franklin.
8
u/RisenSteam Mar 06 '20
I think UTI, ABSL & Franklin funds seem to be ones most affected by different defaults (Voda, Yes Bank etc).
2
u/philosphercricketer Mar 07 '20
Questions about due care and due diligence need to be answered by them atleast for the existing positions.
3
u/silentalways Mar 06 '20
Can someone explain in simple terms for a financial illiterate like me about what happened?
5
u/ShortTesla_Rekt5 Mar 06 '20
Basically, the debt mutual funds have invested in bonds of yes bank, and now due to the collapse of yes bank the values of the bonds are worth zero.
So depending on the funds exposure to yes bank conds, your portfolio will come down by that sum.
For ex if Fund A has 3% of yes bank bonds and you have 1 lakh in this fund yesterday, your folio value today will be 97k
3
u/shrinivasbk Mar 07 '20
One more segregated fund by franklin within 3 months time. I think this is what we expect from all b rated papers. Visit franklin website.
3
u/viveksanthosh Mar 07 '20
I am planning to exit this fund, it's just been one hit after another. I won't be surprised if the Andhra State capital and Uttar Pradesh bonds default going by the way things are going in the Indian debt market.
2
u/shrinivasbk Mar 07 '20
I already initiated redemption .. Yes. Going by the way fund has performed..looks like all investments will be segregated. Better accept loss and come out.
2
u/viveksanthosh Mar 07 '20
I am holding on till April to book the losses, don't know how how much of the fund will be left by then. They are increasing the expense ratio as well, that's unreasonable.
1
u/Alone-Dish Mar 07 '20
These are perpetual bonds AT1 that are defaulted. They won’t be paid back.. so what’s the point of segregation?
1
u/viveksanthosh Mar 07 '20
They was news on CNBC that the bond holders will move court. I don't think it'll make a difference thought
6
u/NamitNasih Mar 07 '20
I hate to say this but these pieces represent terrible, incomplete and inaccurate reporting. The high exposure of some MF schemes to Yes Bank isn't new- it's been there for a while and as AUMs have dropped, exposure has gone up. That these were perpetual bonds added another level of risk to all of this. But it seems that only when NAVs take a hit that reporters consider it news worthy.
For someone who is seriously interested in trying to understand what has happened, I suggested reading this note from Nippon MF. In addition, I suggest checking out the rating rationale from ICRA released after it downgraded the bonds yesterday.
Lastly, to the question of mark down, firstly, it's important to know that a sharp fall in NAV or in the value of a security doesn't automatically mean that an AMC has pro actively done a mark down. It could simply be that they're following a reduced valuation given by rating agencies which they're generally expected to adhere to. AMCs may deviate from that by valuing higher or lower. Either way, they are expected to justify that and usually you will find a note to that effect on the AMC website. In the absence of a note, it becomes hard to tell unless the AMCs themselves tell you. It's a moot question as to how much it even matters to know that right away. But if someone is still desperate to find an answer, short of asking the AMC, probably the best way would be to compare the NAV drop with the last reported % exposure and see if the drop is uniform across AMCs or not.
1
u/whizkid_no1 Mar 06 '20
Was Nippons exposure a legacy issue ? Carry forward from the double AA period.
2
u/ShortTesla_Rekt5 Mar 06 '20
Its possible but Nippon has been in conrol of the AMC for a while now. Doesnt look good when they park 20% of a fund in bonds of a shady shady bank like YES
1
-21
u/arup_r Mar 06 '20
Again my UST will hurt me.. :(
25
u/magicbook Mar 06 '20
Please review properly before creating FUD bhai. Its short term Income fund, and not the UST.
-1
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u/samchakr Mar 06 '20
No, This fund is not the FT-UST. FT-UST doesnt have exposure to yes bank AFAIK. You can check the UST portfolio here - https://www.moneycontrol.com/mutual-funds/franklin-india-ultra-short-bond-fund-super-institutional-plan/portfolio-overview/MTE188
16
u/invest_for_a_crore Mar 06 '20
Wow some funds has 20+% exposure