HDFC Asset Management Company shares fell as much as 7 percent intraday on June 18 after the company decided to take exposure to non-convertible debentures of debt-laden Essel Group.
The stock was quoting at Rs 1,832, down Rs 97.75, or 5.07 percent on the BSE at 09:42 hours IST. However, it rallied 22 percent in the last three months.
“We, on June 17, decided to provide a liquidity arrangement to certain fixed maturity plan schemes of HDFC Mutual Fund (collectively FMP schemes), to deal with the illiquidity faced by such FMP Schemes due to their exposure to the non-convertible debentures (NCDs) issued by Essel Group companies,” HDFC Asset Management Company said in its BSE filing.
Edisons Infrapower & Multiventures Private Limited and Sprit Infrapower & Multiventures Private Limited are two companies promoted by the Essel group.
HDFC AMC said this liquidity arrangement shall only apply in case of FMP schemes (having an exposure to the NCDs issued by the Essel Group Companies) which have either already matured in the month of April 2019 and/or will mature till the standstill arrangement entered into by the company with Essel Group Companies is in force.
Provision of such liquidity arrangement will entail acquisition by the company of NCDs issued by the Essel Group companies held by such FMP Schemes at the prevailing valuation as on respective maturity/purchase dates, it added.
According to the asset management company, the liquidity arrangement may involve an aggregate outlay not exceeding Rs 500 crore and will be put in place shortly.
HDFC AMC said such liquidity arrangement is in the larger long-term interest of the company and is being undertaken purely as a measure to provide liquidity to the relevant unitholders.
While having an overweight call with a price target at Rs 2,000, global brokerage Morgan Stanley said liquidity arrangement for Essel should benefit investors & improve sentiment, but new arrangement does pose financial risk in the event of under-recovery.
Security cover across HDFC AMCs at 1.2-1.5x on June 17 against 1.4-1.8x on April 11, 2019, it added.