Sebi asks funds to give info on holdings in all unlisted bonds

Mumbai: The Securities & Exchange Board of India (Sebi) has asked mutual funds (MFs) to share information of all holdings in unlisted bonds — securities which have become untradeable in a frozen bond market where fund managers, grappling with redemption pressure, are struggling to either sell or pledge top-rated liquid papers to raise money.The capital market regulator has asked the fund industry body to give details — such as the assets under management of schemes holding unlisted non-convertible debentures (NCDs), the various unlisted bonds these have invested in, and the share of such bonds in the scheme.Last year, MFs were told to lower their investment limit in unlisted NCDs to 15% by March 31, 2020 and 10% by June 30, 2020. However, faced with a risk-averse market and surging bond yields, Sebi, earlier this week, extended the deadline by six months for MFs to comply with the cap on investments in unlisted NCDs. The liquidity in unlisted NCDs have come down over the past few months as MFs were restricted from investing in such securities (as well as unlisted commercial papers) since October 1, 2019.The value of unlisted papers in the six schemes that were recently shut down by the top asset manager Franklin Templeton was 32% as on April 22, 2020.75500673In its communication to the Association of Mutual Funds in India, Sebi has also asked for investment break-up of portfolio of schemes holding unlisted NCDs. For each such scheme, funds have to give the residual maturities of all bonds (listed and unlisted) and whether an issuer has other listed securities like stocks, bonds or CPs.“Not that all listed bonds are liquid, particularly in the current market. Probably, Sebi is trying to assess the risk in the system and stress it could have if redemptions continue,” said an industry person. “There are mid-sized companies, including NBFCs, which do not list their NCDs. In unlisted papers, the terms and conditions may not be readily available,” said the person.The fund houses were told to share the data by Friday evening. “It’s a bank holiday, exchanges are shut. We were not expecting any email from Sebi asking for data.The regulator has not said why it needs the information,” said a source.According to market circles, funds are dealing with redemption and this is reflected in the rise in bond yields. Many funds have approached banks for a month-long loan lines – instead of the intra-day overdrafts they typically draw in normal times to tide of temporary cash-flow mismatch. “When a scheme borrows, the interest cost to the extent of average portfolio yield is borne by the scheme. Most borrowings are at higher than portfolio yields and the spillover is borne by the AMC,” said a fund manager. Rules allow an MF scheme to borrow up to 20% of the assets under management.

from Economic Times https://ift.tt/3bX2lFF