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Difference between the promoter debt and operating company debt

Mutual funds have an exposure of Rs 5,710 crore to various Essel Group companies through 133 schemes, increasing the risk for investors, due to the high debt levels of the Subhash Chandra-led group and its inability to repay money borrowed from fund houses. UTI Mutual Fund has investments of around Rs 95 crore in Zee Learn. Here are few significant facts highlighted by Mr. Amandeep Singh Chopra, the group president & head of fixed income at UTI AMC

UTI MF’s exposure in Zee Group

UTI Mutual fund have investments of Rs 9.5 crore in UTI Credit Risk Fund and UTI Medium Term Fund in the listed company Zee Learn, which is a child development and education company. Zee Learn is a highly profitable company making an EBITA of Rs 126 crore in M9FY19 with a debt of only Rs 400 crore. Our NCDs are secured by 1.1 times of fixed and current assets and, furthermore, we also have corporate undertaking from Zee Entertainment, a listed company with a market cap of Rs 40,000 crore. Hence, UTI’s NCDs are rated AA (SO). Other than this, we do not have any other exposure to the Zee Group or its subsidiaries including promoter companies.

Difference between the promoter debt and operating company debt

People must understand that there is a difference between the promoter debt and operating company debt. For example, it is reported that total exposure of Zee Group and its entities is Rs 8,000 crore. This Rs 8,000 crore number being reported in the press includes, According to Mr. Chopra, approximately Rs 6,000 crore of promoter debt raised in his personal capacity through share pledges, which has been restructured till September as already reported. The balance debt of the operating companies is not facing any stress or payment issues. So, actually the exposure of concern is the promoter’s debt and the perception being created is that all debt of Zee Group is under some stress. The loans against share (LAS) bonds have been downgraded from AA from A. But operating/listed companies like Zee Entertainment and ZEE Learn are still rated AA+ /AA+ (SO).

Participation from MFs in LAS

There are no precise data on this but approximately the size of this market is around Rs 1,20,000 crore, of which MFs could have around Rs 25,000 crore. This was a few thousand crores five years ago. LAS were offering higher yields and maybe MFs were attracted to it. So, if AAA-rated bonds were at a yield of 8.5%, LAS was giving yields of 10.5-12%, which was much higher reflecting the underlying risk of equity shares and lower rating. Regulators are looking closely at the recent events and may propose some appropriate guidelines. At UTI, they don’t invest in LAS and don’t have any exposure.

– Amandeep Chopra, UTI MF