The Rs. 630 crore bonds held in about five schemes of Franklin Templeton Mutual Fund was about to break or already broke the minimum 3 times the cover stipulated in the transaction agreement that led to the top-up of collateral, said those people who did not want to be identified.
Covenants suggest that the value of Yes Bank shares be at least Rs. 1,890 crores, according to transaction summary provided by Templeton. The value of 7.56 crore shares as a security cover is Rs. 1,222 crores based on Wednesday’s stock price. Yes Capital has provided further Rs. 208.9 crores as cash collateral.
Whenever there is a breach of covenant, Yes Capital has 14 days to meet its collateral obligations, the document shows. Yes Bank shares are down more than 60 percent this year from its peak of Rs. 404.
“This is a highly rated, short maturity investment (structure includes interest rate reset option in Mar 2019) with 3X cover, and there has been no breach of any covenants for these NCDs,’’ Templeton said in a statement.
Collapse in shares of Yes Bank over the past few weeks has triggered worries about mutual fund investments in the non-convertible debentures of holding companies of Kapoor. Bonds of Yes Capital and Morgan Credits are in focus as borrower has to top up to continuously meet the cover. Franklin Templeton and Reliance Mutual Fund own substantial portions of the bonds sold by these two companies.
Morgan Credits Pvt. Ltd. and Yes Capital (I) Pvt. Ltd. are holding companies owned 100% by Radha K Khanna, Raakhe K Tandon and Roshini Kapoor (3 daughters of Kapoor.
“To address their growth objectives, Morgan Credits and Yes Capital have raised some debt which is well within their eligibility limits,’’ said a statement from Three Sisters, a start-up venture owned by Kapoor’s three daughters. “MCPL and YCPL have at all times complied with all covenants of such debt including servicing obligations and will continue to do so.”
Morgan Credits Pvt Ltd, which owns 3.04 per cent in YES Bank, has raised Rs 1,160 crore from sale of debentures most of which is held by Reliance Mutual Fund. One of the covenants is that there should be two times cover for these debentures, i.e., the value of collateral. This was rated by Care Ratings of CARE A- and bears a stable outlook.
Morgan is said to have pre-paid about Rs 200 crore and at the same time brought in Rs 500 crore additional collateral, said one of the persons cited above.
“We do not comment on specific investments,’’ said a Reliance Mutual Fund spokesman. “There are numerous holding company borrowings by issuers from India’s top business houses with similar structures, and all the large asset managers regularly invest in these holding companies / CICs. This has been standard industry practice for years.”