Why mutual funds marked down investments in IL&FS SPV

Why did mutual fund houses that have investments in IL&FS SPV road projects mark down their investments?
Mutual funds have holdings in three SPVs of IL&FS — Jharkhand Road Projects, Hazaribagh Ranchi Expressway Limited, and Jorabat Shillong Expressway. Three fund houses have marked down their investments by 20-25% in debt schemes that held the above securities. This happened after rating agency Crisil downgraded its rating on the non-convertible debentures (NCDs) of Jharkhand Road Projects Implementation Company Limited (JRPICL) to ‘D’ from ‘BB(SO)/Watch Negative’.

What prompted the rating agency to downgrade Jharkhand Road Projects?
The company did not pay the interest and principal obligations of ₹76 crore due on January 21, 2019, to bond holders which include mutual funds. Despite adequate funds in the escrow account of the SPV and timely instruction sent by the trustee to pay the investors, the escrow bank did not process the payment, prompting the downgrade from CRISIL.


What is the financial condition of Jharkhand Road?
Jharkhand Road Projects has enough wherewithal to comfortably service the NCDs from its own cash flow. As on December 31, 2018, the company had ₹345 crore of liquid funds available for debt servicing (around 4.5 times the quarterly debt obligation of ₹76 crore due in January 2019).

What impact does the rating downgrade have on MF investors in these schemes?
Investors holding units have seen the NAVs of these schemes fall by 0.14% to 1.57%.

Why did two MFs mark down their investments even though there was no downgrade on their holdings?
While there was a downgrade in Jharkhand Road, there’s no downgrade in Hazaribagh Ranchi Expressway Limited and Jorabat Shillong Expressway. However, the two MFs holding these securities marked it down by 25% in their portfolio as fund houses have to value an illiquid security on a fair-value basis.