In This Issue:
- Editor’s Column – NBFC CPs Stressed on Near-Term Liquidity
- Reliance Credit Risk Fund – Portfolio Analysis
- Weekly Issuer Data – AA and Below
- Rating Upgrades, Downgrades, and Other Data
- Current Quotes – Corporate Bonds
- Other Data
Editor’s Column -NBFC CPs Stressed on Near-Term Liquidity
NBFC credits are still seeing high spreads persist in the market as uncertainty on their future liquidity persists. The spreads are elevated despite the RBI and Government taking measures to infuse liquidity to the NBFCs. Read our note on RBI and Government measures to Infuse Liquidity to NBFCs.
NBFC CPs are under the highest stress as near term liquidity is still an issue. Highest safety rated NBFC issuers are seeing CP yields at over 9% levels, across maturities. Spreads are at 350bps plus over the repo rate of 6.5% and at over 200bps and 150bps over 3 month and 1 year tbill yields.
The market is seeing a redemption of around Rs 500 billion of NBFC CPs in the near term and is nervous on whether the CPs can be redeemed even if the holders, Mutual Funds largely, do not refinance them. Banks are the only recourse available to the NBFCs to redeem the CPs. The strong NBFCs with good liquidity profiles will have no issues in redeeming the CPs but weaker ones with poor liquidity profiles will have to draw down on bank lines, if available, to redeem the CPs.
Mutual funds continue to see risk aversion among investors as worries on NBFC CP redemptions are keeping them away from funds that hold CPs. Even liquid fund portfolios are under intense scrutiny due to the pressure on NBFC liquidity.
November will be crucial for NBFCs, and if this can be tided over, NBFCs should see pressure easing on liquidity.
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Reliance India Credit Risk Fund – Portfolio Analysis
Reliance credit risk fund portfolio is diversified through 15 sectors with finance, power, and construction having the highest weight in the portfolio. The finance sector has 32.27% weight in the total portfolio (Financial sector includes Banks, Microfinance, HFCs, NBFCs). Apart from the financial sector, power has the second highest weight followed by Construction sector. Power has 24.71% weight and Construction has 17.99% weight in the portfolio.
Fund holds 27 papers from the financial sector, the majority of papers are from Private Banks and HFCs.
In the construction sector, fund holds the majority of bonds from real estate developers. Fund holds RMZ Buildcon with 9.30% weight, which is BBB+ rated. RMZ Buildcon has 47% shareholding in RMZ Infotech Private Limited (RIPL), which is engaged in commercial real estate. Sectors such as IT and ITeS, retail, consulting and e-commerce have registered high demand for office space in recent times. Commercial office stock in India is expected to cross 600 million square feet by 2018 end, while office space leasing in the top eight cities is expected to cross 100 million square feet during 2018-20. Grade-A office space absorption is expected to cross 700 million square feet by 2022, with Delhi-NCR contributing the most to this demand.
The outlook for the construction sector is improving as the government has taken several initiatives to encourage the development in this sector. Implementation of RERA & GST will make this sector more transparent and streamlined, which will improve the consumer & investor sentiment. The Smart City Project, where there is a plan to build 100 smart cities, is a prime opportunity for real estate companies. SEBI has given its approval for the Real Estate Investment Trust (REIT) platform, which will help in allowing all kinds of investors to invest in the Indian real estate market.
In the power sector, the fund holds transmission companies, renewable energy, and generation companies. The power sector is in stressed position but transmission sector is doing better when compared with generation and distribution. Fund majority of holding is in the renewable energy sector and government-backed power company. Reliance credit risk fund holds 7.47% in UP Power Corporation, which is in power distribution space. UPPCL NCDs is backed by the UP Government. Going forward, Ujwal Discom Assurance Yojana (UDAY Bonds) will gradually improve the financial conditions of state-owned distribution companies. (Click here to Read about UDAY Bonds). Click here to Read about Outlook for the Renewable Sector
Reliance credit risk fund portfolio has 81.72% of bonds with credit ratings of AA & Below, Fund holds 4.89% in unrated bonds.
Reliance credit risk fund holds Hinduja Leyland Finance bond whose credit ratings were upgraded recently, and Syndicate Bank bond whose credit ratings were downgraded recently.
Expese Ratio- 0.98% (direct plan), 1.85% (regular plan).
Yield to Maturity- 10.88%
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