Mutual funds having exposure to Vodafone Idea’s corporate papers and shares are staring at possible losses as an adverse judgment from the Supreme Court threatens to down the curtains on the business.
The telco’s survival will now depend on its ability to garner funds to pay the statutory dues and repay what it had borrowed from the market.
The government has estimated Vodafone Idea’s dues at over Rs 53,000 crore, including over Rs 28,000 crore in licence fee, interest and penalties and the rest on spectrum usage charges. Besides, the company’s total debt stood at Rs 1.15 lakh crore at the end of FY2019, shows available data.
Mutual fund investors have already taken the first hit from this, after Franklin Templeton India marked down its Vodafone Idea debt exposure to zero as a pre-emptive measure. It has also limited fresh inflows to the schemes having Vodafone Idea papers to Rs 2 lakh per day per fund per investor.
“The large quantum of AGR dues and immediate payment timeline is resulting in significant uncertainty with respect to our exposure to Vodafone Idea,” Franklin Templeton said.
Following these actions, net asset values (NAVs) of six of its funds have fallen 4-7 percent due to the one-time write-off. As of January 16, total exposure of mutual funds stood at Rs 4,466- 3,389 crore in debt and Rs 1076 crore in equity.
Franklin India has the biggest debt exposure to the company at Rs 2,074 crore. In the equity segment, it owns Vodafone Idea shares worth Rs 630 crore. Aditya Birla Mutual Fund and UTI Mutual Fund each have exposures in excess of Rs 500 crore in the debt segment.
Vodafone Idea stares at a collapse?
Shares of Vodafone Idea crashed some 39 percent on Friday, potentially erasing the value of the shares held by mutual funds by Rs 419 crore.
Brokerages are depicting a bleak future for Vodafone Idea
Morgan Stanley and Edelweiss expect further consolidation in the telecom industry. The latter said the industry may move towards a duopoly, indicating a possible collapse of the Vodafone Idea.
Vodafone Idea Chairman Kumar Mangalam Birla has already gone on record, saying that his group may have to shut shop if the government does not provide any relief.
“We believe that the final outcome may not be linear and there could be a payment extension or moratorium, to say the least. Irrespective of the outcome, Bharti is well prepared and, along with RJio, appears poised for strong market share gains,” said brokerage Motilal Oswal.
Most brokerages have turned bearish on Vodafone Idea. Bank of America-Merrill Lynch has an ‘underperform’ rating on the scrip.
What should you do?
If you are an investor in any of the debt funds that have exposure to Vodafone Idea papers, keep calm.
“They should keep calm and hold on, because if they exit now, the loss will become permanent. If you hold on, there is a likelihood of some recovery or a substantial writeback,” said Dhirendra Kumar, Founder & CEO, Value Research.
He added Franklin’s step is in a right direction, however, it was not mandatory.
Vidya Bala Co-Founder at PrimeInvestor, echoed a similar views. “Franklin has a track record of making up for hits that it takes. If an investor has a long-term view, there is no point exiting it now after the hit,” Bala said.
Asked if mutual funds that have Vodafone Idea’s papers may rush to sell them, Vidya Bala said it depends on their ability to find takers for the paper. “It will also depend on what the company is going to do. If it is going to take some credit line from banks, then the story will be different.”―Newsfeed