Kotak Mahindra AMC’s Nilesh Shah Defends Failure To Fully Redeem Some FMPs
Kotak FMP Series 127 and 183, which matured on April 8 and April 10, faced an exposure of nearly 18% and 19%, respectively.
Nilesh Shah of Kotak Mahindra Asset Management Company said in seven of the eight fixed maturity plans which has debt-laden Essel Group—the controlling shareholders of the Zee Group of companies—in their portfolio, the asset manager is returning more than the amount they had collected along with some appreciation.
“It’s only in one FMP which has matured today where I am returning about 0.6 percent less,” the managing director at India’s seventh-largest asset management company told BloombergQuint.
Shah, however, said it’s appropriate to give time to the promoters of the debt-laden Essel Group companies instead of resorting to panic selling of shares as it would lead to much lower recovery than the dues of the unit holders.
“It is only a matter of time until the unit holders receive their money on the maturity of the FMPs,” Shah said. “If they can afford a little bit of time or delay, we are quite hopeful they will recover all their dues.”
Shah also assured frayed FMP investors that their money will be back with them by September-end. “As we work with the promoters of Essel group, where we have taken their personal guarantee and have an upside sharing if there is a strategic sale in Zee, a combination of this will ensure that you (investors) will get back your money by Sept. 30 along with accrued interest and appreciation.”
The AMC earlier in the day said investors of its FMPs may not be able to redeem their entire amount because of its exposure to the Essel Group. Kotak FMP Series 127 and 183 that matured on April 8 and April 10 had an exposure of nearly 18 percent and 19 percent, respectively, to the Essel Group, according to the website of the asset manager.
Watch the full interview here:
Here are the edited excerpts from the interview:
Nilesh Shah: We had launched FMP 127 about three years ago. Of the money collected, we had invested some money in Essel group promoter companies. These companies had given us a pledge of 1.5 times Zee shares. On Jan. 25, there was a sale of about Rs 200 crore worth of Zee Entertainment shares by certain lenders. This resulted in prices dropping from Rs 400 to Rs 280 apiece. However, on the weighted average price, it was about Rs 319 apiece. On Jan .26, there was a meeting of 44 lenders. Rs 7,500 crore exposure there was from mutual funds. Rs 4,000 crore was from NBFC, and Rs 2,000 crore was from various overseas lenders. The 44 lenders representing collectively Rs 13,500 crore worth of exposure to Essel group promoters took a call that if Rs 200 crore worth of loans against shares are sold, and prices could come down by 33 percent, there is no way we will be able to sell Rs 13,500 crore worth of exposure without adversely impacting prices, and converting our notional loss into actual loss.
On Jan. 26, these 44 lenders took a call that the panic selling of Zee Entertainment in Essel group company shares will not be good for us. We won’t be able to recover all our dues from selling of shares. After we reached that agreement, we entered negotiations with the promoters so the dues could be recovered, and our unit holders could be protected. Yesterday, we had one FMP maturity— FMP 127, today we have another FMP maturity. In yesterday’s maturity, we have repaid all the exposures, all the investments which we admit other than in Zee entertainment, other than Essel group promoted companies which were backed by the shares of Zee to our investors. We have not retained anything on that, contrary to popular perception or some news which is being spread out. The money which has been invested into Essel group promoted companies, that money has been retained. We will repay that money when we receive that money from the Essel group companies. Now, because we have provided an allowance of time to Essel group promoted companies, I needed to ensure that our unit holders are protected. We are better secured today than we were yesterday because we have opted the personal guarantee of the promoter, and we have taken some up-side sharing if there is strategic share sale in Zee entertainment. We believe that instead of resorting to panic selling of shares, which would have resulted into much lower recovery than our dues, it is appropriate to give allowance of time to promoters and secure ourselves with better security and higher interest rates. This will work well for our unit holders. Of course, unit holders haven’t received all the payment of their FMP on maturity but if they can afford a little bit of time or delay, we are quite hopeful they will recover all their dues.
What if the promoters of Zee Entertainment are not able to enter the proposed stake sale within the time frame that has been agreed upon as of now? What happens in such a scenario?
These are hypothetical questions. You will be asking me this if I had sold the shares and you had seen t=what Rs 200 crore sale had done to the prices. If 13500 crore worth of sales would have happened, you can imagine what will happen with the prices. Then you will ask who are these fund managers who have sold Zee shares at such a low price when there were buyers of these shares at Rs 600 apiece just a few months ago. There is no answer to this. You have to look at what is good for your unit holder. We have been better secured, better rewarded, and we are giving promoters time because it is in the interest of our unit holders. This is not working with promoters to help them but working for our unit holders because that will help in recovering all our dues.
The two entities that Kotak had exposure to, they have defaulted, due to which the money that had to be redeemed to the FMP holders has not been paid in full. But because there is an agreement that lenders have reached with the Zee promoters that there is no redemption happening from the lenders side.
Absolutely. There has been an allowance of time given to promoters so that they can make the payments within an expected period. Our FMPs are close-ended funds. Investors do not come in and go out. On maturity of FMP, I have to make a payment of the maturity proceeds. Of Rs 100 in the portfolio, is Rs 90 is invested into other assets which have matured, and which are liquidated, at Rs 10 invested in Essel group companies, I have repaid Rs 90 back to the investors. In all, we have eight FMPs where Zee or Essel group companies are there in the portfolio or ITNL is there in the portfolio. In seven FMPs, we are returning more than the amount we had collected along with some appreciation. It is only in one FMP which has matured today where I am returning about 0.6 percent less. Every single investor in all of those FMPs which have matured or are likely to mature, based on our current estimate, we have repaid principal along with some capital appreciation, except in one FMP.
What would your message be to FMP investors?
In the fixed maturity plan, if you see there has been a deferment of payment. It is not default of payment. There are lots of articles which talk as if we have not paid back any of the FMP holders and they are unlikely to receive any money whatsoever from the FMP. This is not some Madhavpura Mercantile Cooperative Bank, or Kapol Cooperative Bank where deposit holders have not received any money. This is a FMP where we have repaid all the proceeds to the investors other than our investments in Essel group promoted companies and ITNL. In eight FMPs where these two exposures are there, in seven FMPs you are getting back your principal along with appreciation. Only in one FMP you are getting 0.6 percent lesser than the principal. As we work with the promoters of Essel group, where we have taken personal guarantee of promoters, where we have upside sharing if there is strategic sale in Zee, a combination of this will ensure that you will get back your money by Sept. 30 along with accrued interest and appreciation. You have to bear with the FMP investment. What we have done is that we have not converted a notional loss into an actual loss. Otherwise, all of you will be accusing us of why we are selling shares so cheap and that we are not working for the unit holders but for the buyers of the shares. We are not doing that. We are protecting our unit holders’ interest, so we need to work with promoters. If promoters are desperate sellers, they will not realise the full value of their assets. If we give them time and there are newspapers reports to say that they have put their stakes in various companies on block, and we are quite hopeful that they will be able to sell their assets in a reasonable and orderly fashion. Their assets are far more than the total borrowing they have done and they will be in a position to repay lenders. This is not a question where there are only liabilities and no assets, it is a question of liquidity mismatch.