Hdfc amc, Essel dues
Hdfc amc has decided to dip into its own shareholder’s funds to the extent of Rs. 500 crores to pay the FMP investors in full. Well if Hdfc amc were not a public listed company this information would never have come out. Even now if the “debentures” of Essel was nicely “placed” with some accomodating investor, and he was suitably compensated in some other way, it would not have come out. Let us say Hdfc Ltd (sponsor of Hdfc amc) had given a loan to “John Doe and Co.” to the extent of Rs. 500 crores, and John Doe had decided to “buy” the debentures, nobody would have known what happened. However, transparency has its risk.
Of course it is in the interest of the unit holder for this deal to be done. However, principally should this be allowed. If this is allowed, should we have a “capital adequacy” clause for mutual funds? Actually this beats the whole funda of an amc being a pass through vehicle.
However, this is not something new. We have heard about this for a very long time. Long ago Franklin Templeton did a similar bail out. In the 2008 crisis and recently in the Nbfc crisis we heard such murmurs for a long time. The great UTI fall in Nav was protected by creating SUTI – the government provided a way out for UTI. So in a country where we are willing to throw the equity investor to the mercies of he market we think that the “debt” investor should be protected. We do not see why we should let the unit holder “learn” by burning in the market fire. He should. That is what makes a coal turn to diamond.
However, this is a bad precedent for sure. However, it is not the first time that this is happening. Hdfc also runs the risk of telling its fund management team that profits will be distributed as bonus, but losses will be borne by the shareholders. The way of compensating the rich top employee team is wrong. However, whatever I write here or scream here will not matter. My take is simple – this is a wrong precedent. However, Hdfc amc is not the first amc doing this. There has to be a better solution like selling this to an ARC. Maybe Hdfc amc could get Rs. 400 crores for this debt and not the full Rs. 500 crores. Let market forces decide the value of these bonds, not the top management team of Hdfc Amc. Well Sebi we are eagerly waiting to see your move.
Pradeep
HDFC AMC is paying for a bad contract they signed up with Zee promoter tonot sell the shares till Sep when they defaulted. They should have sold off the Zee shares to makeup for the default. Essentially HDFC are paying for a bad business decision. And you know what, a bad business decision should affect the shareholders and rightly so.
AMEHRA
You have written as if you are very sure that HDFC AMC has bought these bonds at face value and not at a 50% discount. How do you know that? At least some acknowledgement that HDFC AMC has not disclosed the purchase price would be nice.
Tejas
My first response is that such a situation arised as HDFC as well as many other AMC negotiated with Zee promoters for holding back for 6 months. This situation shud never arise in any debt position.
Why bend backwards for only One promoter .
Second such a situation with collateral as shares is again fundamentally wrong.
Many wrongs done and to set it right many more are in process