Reliance Home Finance Rolled Over Payments To Reliance Mutual Fund

Reliance Home Finance Ltd. has failed to repay the principal obligations on its non-convertible debentures held by Reliance Mutual Fund, worth Rs 400 crore. The non-banking lender paid the interest due on the debentures but failed to honour principal repayment obligations, Reliance Mutual Fund said in a statement. Both Reliance Home Finance and Reliance Mutual Fund are part of the Anil Ambani-led Reliance Group.

As a result of this event, the mutual fund considered it as a default and marked down the instruments to ‘D’ (default) status from ‘C’. The development has impacted the net asset values of 19 schemes of the mutual fund, including Reliance Ultra Short Duration Fund, Reliance Credit Risk Fund and Reliance Strategic Fund.

On Friday, the shares of Reliance Home Finance fell as much as 8.2 percent to close at Rs 11.80 each, compared to a 0.45 percent fall in the Nifty Index.

In April, credit rating agency CARE Ratings had downgraded Reliance Home Finance’s debt to default, citing delays in servicing bank debt. A week earlier, Reliance Home Finance’s parent company Reliance Capital Ltd. said it has reduced outstanding commercial papers to Rs 75 crore from Rs 950 crore earlier.

Reliance Home Finance denied that a default had occurred, saying that the maturity of the NCDs had been extended, “purely to address timing mismatches in receipt of proceeds from the ongoing monetisation of retail asset pools.”

“In view of the continuing severe liquidity crisis in the sector, as now formally recognised even by the RBI, the maturity of certain NCDs of Rs 400 crore has been extended till Oct. 31, 2019, with the formal written consent of the concerned Debenture Trustees and NCD holders,” Reliance Home Finance said in a statement.

Earlier this week, SEBI Chairman Ajay Tyagi clarified that the market regulator does not recognise any standstill agreement between companies and mutual fund houses.

Later in the day, Reliance Mutual Fund issued another statement that deleted the mention of default by Reliance Home Finance. The statement said the maturities had been rolled over. But the revised statement did not reverse the additional markdowns to schemes’ NAVs that were disclosed in the earlier statement referencing a default. 

When asked why, if this wasn't a default, the NAV markdowns persist, a spokesperson for the mutual fund told BloombergQuint, “ the securities were marked down to 75 percent based on defensive considerations. As soon as the money is recovered it would be marked up”.