HDFC Asset Management Company (AMC) on Monday said it will take exposure to non-convertible debentures of debt-laden Essel Group.

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The AMC will acquire the NCDs issued by Essel Group at the prevailing valuation. The arrangement may not exceed an outlay of Rs 500 crore.

The company said the liquidity arrangement shall only apply in case of fixed maturity plan (FMP) schemes 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.

Dhirendra Kumar, CEO of Value Research Group, shared his views on the development.

“Mutual Fund is a business of reputation. That will definitely give HDFC a great different advantage. It will be a situation where it is very hard to replicate the same action for other companies,” Kumar told CNBC-TV18 on Tuesday.

“This is going to be a Pandora’s box because this raises expectations. Mutual funds is supposed to be a pass-through but this is an extraordinary situation and it has happened in the past too. It has happened in a few situations where AMCs were asked by the regulator to take it on their books but undoubtedly mutual fund is a pass-through and that does not happen in equity fund, that does not happen in fixed income funds. The regulator has enabled the side pocketing, the segregated portfolio mechanism - if something goes wrong how to ensure continuity of a fund and ensuring the interest of all three kind of investors, the new investors, the existing investors and the prospective investors. The regulatory angle which I was mentioning might have prompted HDFC to deal with it differently. Also it is a matter of subjective evaluation,” he added.

When asked if regulators will get involved at some point, he said, “Regulators have gone on record. It is now in the public domain that HDFC was asked questions or was asked to explain what prompted it to act the way it did. This situation will prompt regulators as well as fund companies to ask questions and articulate the game-plan from hereon which is legitimate and acceptable to all.”

First Published:Jun 18, 2019 2:01 PM IST