JP Morgan Asset Management Company (AMC) on Monday announced that, they will seek the approval of unit holders of JP Morgan India Treasury Fund and JP Morgan India Short Term Income Fund to segregate the illiquid assets from the schemes. According to the market players this is the move in the right direction and will give an option to investors to redeem their ‘liquid assets’.
Both the schemes have an exposure to a Secured Redeemable Non-Convertible Debenture issued by AMTEK Auto Limited, which is currently illiquid in the market owing to credit concerns of the issuer. On August 27, 2015, the credit rating of AMTEK’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 the valuation agencies 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.
The fund house on 28th August had capped the redemptions at one percent of the total outstanding units on both the schemes. In the release issued by JP Morgan AMC it stated that, “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, fund house also said that, unitholders are 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 the illiquid asset and the decision will be made by a simple majority.
As a result of 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 J.P. Morgan 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, concluded the press note.
