JPMorgan Asset Management Company on Monday said it will seek the approval of unitholders of JPMorgan India Treasury Fund and JPMorgan India Short Term Income Fund to segregate illiquid assets from the schemes. Market players welcomed the move and said it would give investors the option to redeem their ‘liquid assets’.
Both schemes have exposure to secured redeemable non-convertible debentures issued by Amtek Auto, currently illiquid in the market owing to credit concerns of the issuer.
On August 27, the credit rating of Amtek Auto’s previously rated other non-convertible debentures was downgraded from “BWR A+” to “BWR C” by Brickwork Ratings. Immediately thereafter, the reference price of the bond held by the two JPMorgan schemes was reduced to 75% by Crisil and Icra. This change in price was reflected in each scheme’s NAV on August 28 and, subsequently, the two schemes received an unexpectedly high level of redemption requests.
On August 28, the fund house capped the redemptions at 1% of the total outstanding units. In a release, JPMorgan AMC said: “If effected, this can allow for the gating to be lifted, providing unitholders of the schemes with as much liquidity as possible.”
The press note also stated that unitholders were being given a notice of seven clear business days to vote (by post or drop-off at various CAMS locations across India) on the proposed segregation of illiquid assets and the decision would be made by a simple majority.
As a result of the proposed segregation, the NAV of the existing units in the schemes would drop by the value representing the illiquid segregated asset and all unitholders on the record date will receive proportionate units to reflect their interest in the value of the segregated asset.
“This mean that there will be two NAV of the schemes — one will be of the liquid assets and other of illiquid assets of Amtek auto. Investors will be free to redeem their units in the liquid portfolio,” said a senior official from the from the mutual fund industry.
Meanwhile, JPMorgan “will continue to take all steps in pursuing satisfaction of Amtek’s obligation under this bond and/or any other means of receiving cash value for these investments in the best interest of the unitholders and to the extent rights under the bonds and applicable law allow”, said the press note.
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