On 1 November, India Ratings and Research downgraded non-convertible debentures (NCDs) of Vodafone Idea Ltd worth ₹3,500 crore to BBB from its earlier rating of A+ and placed the NCDs on negative watch. In support of its action, the ratings agency cited an adverse Supreme Court ruling, which would require Vodafone to pay ₹28,000 crore as part of license fees, interest and penalty.

India Ratings also noted the risk in acceleration of bank loan payments by Vodafone Idea and a delay in asset monetization. Mutual funds had an exposure of ₹2,335 crore to Vodafone Idea Ltd (as of 30 September, 2019) according to data from Rupeevest. A downgrade below BBB would bring mutual funds within the purview of the downgrade matrix set out by the Association of Mutual Funds of India (AMFI). The matrix prescribes a 15% write-down for senior secured assets and 25% write-down for subordinated assets companies in the infrastructure segment, which Vodafone Idea is likely to be slotted under. So far there have been no significant dips in Net-Asset Value (NAV) of the schemes holding Vodafone Idea on account of the downgrade.

According to data from Rupeevest, 31 schemes have exposure to Vodafone Idea. As a percentage of assets, exposure is highest in Fixed Maturity Plans (FMPs) of Nippon India Mutual Fund (ranging from 7-11%). Among open ended funds exposure is highest among debt schemes of UTI mutual fund, as a percentage of assets. UTI Bond Fund has a 8.61% exposure, UTI Regular Savings Fund has a 5.85% exposure, UTI Credit Risk Fund has a 5.22% exposure and UTI Medium Term fund has a 4.92% exposure.

Franklin India Credit Risk Fund, Franklin India Income Opportunities Fund, Franklin India Short Term Income Plan and Franklin India Dynamic Accural Fund have exposures of 4.39%, 3.56%, 3.54% and 2.18% respectively. Some of the schemes may have reduced exposure over the past month.

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