MUMBAI: Kotak Mutual Fund had written to investors in the FMP (fixed maturity product) schemes maturing this month and next, that redemption proceeds from the scheme are being paid except for the component that is invested in instruments of the Essel or Zee Group companies. This follows an understanding a host of mutual funds entered into with the Essel group promoters in January this year. Zee promoters and MFs agreed to a standstill on repayment and assurance that no fire sale of promoter stake help as a guarantee.
Kotak’s three-year FMP scheme, which matures in April-May 2019, has invested in debt securities, money market instruments and government securities. In other categories, it had invested in non-convertible debentures (NCD) issue by Edisons Utility Works and Konti Infrapower & Multiventures belonging to the Essel Group secured by the equity shares of Zee Entertainment and IL&FS Transportation Networks.
“The three firms are facing headwinds due to the company and sectoral-specific issues. We are working closely with the Essel Group for optimal recovery from Konti & Edisons for the benefit of our unitholders and believe that such recovery will take place albeit with some delay. For IL&FS Transportation Networks, Kotak Mutual Fund has made a 100% provision for this investment as the company has been classified in the red category, where recovery is uncertain and will be dependent on the resolution plan achieved by the new board/NCLT,” said Rohit Rao, Chief Communication Officer, Kotak Mahindra Group.
Fixed Maturity Products are close-ended funds of fixed duration that mutual funds float. “Is it limited to only one FMP from Kotak MF? Overall the mutual fund industry has an exposure of around Rs 8000 – Rs 9000 crore to Zee/Essel Group in debt across mutual funds and schemes. Of this around Rs 1700 crore is in FMPs and the rest in open-ended debt funds,” Manoj Nagpal, Outlook Asia Capital, wrote in a series of tweets.