CARE Ratings has downgraded debt worth ₹12,700 crore issued by Reliance Commercial Finance from CARE BBB+ to Care D. According to CARE Ratings, a rating of ‘D’ means instruments in this category are either in default or expected to soon be in default. The rating agency also downgraded another ₹5,000 crore worth debt of Reliance Commercial Finance to CARE C from BBB+.
Last 10 days also saw downgrades on Reliance Commercial Finance and two other Reliance ADAG Group companies – Reliance Capital and Reliance Home Finance
Reason of rating downgrade
CARE Ratings cited rescheduling of NCDs and delays in repayment of bank loan facilities as the rationale for its action. It added that the “liquidity profile of the group continues to be under stress on account of delay in raising funds from the asset monetisation plan and impending debt payments.” Along with Reliance Commercial Finance, two other Reliance ADAG Group companies were downgraded on 18th and 19th April, one by CARE and another by Brickwork Ratings.
Details of mutual funds impacted by the recent rating downgrade
The AMCs exposed to Reliance Commercial Finance are Reliance Nippon AMC, Aditya Birla Sun Life AMC, DHFL Pramerica AMC and L&T FMP.
8 out of the 13 schemes are Fixed Maturity Plans (FMPs).
As a percentage of scheme assets, exposures extend up to 13.6% in case of DHFL Pramerica Short Maturity Fund according to data released by Value Research as on 31st March 2019.
The downgrades come at a time when the mutual fund industry is reeling from downgrades or delayed payments from troubled groups like IL&FS, Essel and DHFL. “There is nothing investors can do, once locked into an FMP,” said Lovaii Navlakhi, Founder and CEO, International Money Matters Pvt. Ltd. “The problem arises at the investment stage, with the thinking that an FMP is an FD with tax benefits. I expect that SEBI will further tighten the issuer and group exposure norms on these products.”