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SBI seeks one-time exception for mutual funds on DHFL


Mumbai: State Bank of India has approached the Securities and Exchange Board of India, seeking a one-time exception for mutual funds over a rule on segregation of assets so that they could be part of a resolution plan being worked on for Dewan Housing Finance Corp.

The nation’s top bank is apprehensive of a systemic risk if the ongoing efforts to finalise the resolution plan for the indebted home financier fall flat, said two people with direct knowledge of the matter.

Lenders to DHFL are meeting on Thursday as they seek to finalise an inter creditor agreement (ICA). A joint lenders’ meeting is also scheduled on Friday. Participation of mutual funds, which hold bonds issued by the company, is key to any resolution plan, as approval of at least 75% of lenders by value and 60% by number is compulsory to executive any resolution plan under the ICA. Most mutual funds could not sign the ICA as they were not compliant to Sebimandated side-pocketing, or segregation of stressed assets from performing investments.

“SBI’s boss (chairman Rajnish Kumar) has written to Sebi as the latest rules on side-pocketing does not allow fund houses to sign the ICA,” one of the people told ET.

DHFL, SBI and Sebi did not respond until press time Tuesday to ET’s emails seeking comment.

SBI, according to the people, was apprehensive of the absence of a cohesive resolution plan that would hurt the interests of investors and could have major systemic implications.

Through an August 29 circular, Sebi had allowed mutual funds to join any resolution process for stressed companies and sign ICAs. But, the approval came with a condition: they must segregate assets through sidepocketing, which should be done on the day of any credit event, or downgrade of debt below investment grade.

The credit event at DHFL had occurred prior of Sebi’s August circular. The only fund house that side-pocketed the DHFL exposure before that is Tata Mutual Fund. The asset management company has agreed to sign the ICA.

“Since they (funds other than Tata MF) have not segregated the portfolio, they are unable to participate in the ICA process,” said a senior executive involved in the process.

SBI chairman Rajnish Kumar is said to have requested the market regulator to issue “suitable directions” so that the resolution plan was collectively agreed on and implemented by a group of lenders.

Banks have Rs 35,000 crore of exposure to the company through loans and also hold nonconvertible debentures issued by it. Bond holders, including mutual funds, insurance companies and pension funds, have a Rs 45,000 crore exposure, which means the company owes creditors about Rs 80,000 crore.

Catalyst, the custodian of bondholders in DHFL, had sent communications to about 87,000 debenture holders asking if they could join the ICA, and received responses from 24400. Some of those respondents have agreed to sign the ICA, while many others declined. Some did not respond.

Redemption or roll-over of bonds is one of the proposals in the restructuring that will relax the terms of repayments for DHFL. SBI sought some clarification also on this, citing various regulatory provisions.





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