Credit rating agency ICRA Ltd on Tuesday placed the ratings of six mutual fund schemes under watch with negative implications for their exposure to special purpose vehicles (SPV) of IL&FS Ltd. The six mutual fund schemes are: HDFC Short Term Debt Fund (HDFC STDF), HDFC Banking and PSU Debt Fund (HDFC BPSU), UTI Banking and PSU Debt Fund, UTI Bond Fund (UTI BF), UTI Dynamic Bond Fund (UTI DBF) and Aditya Birla Sun Life Short Term Opportunities Fund.

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According to ICRA, the rating action takes into account the deterioration in the credit quality of the underlying investments of these schemes driven by their exposure to special purpose vehicle (SPV) of IL&FS Ltd. "ICRA notes that above schemes have exposures to IL&FS SPV, namely, Hazaribagh Ranchi Expressway Ltd (HREL) or Jharkhand Road Projects Implementation Company Ltd (JRPICL) or Jorabat Shillong Expressway Ltd (JSEL)," ICRA said.

The default risks by various SPVs of IL&FS have increased given the recent communication by their management to trustees expressing to stop future repayments citing their interpretation of an order given by the National Company Law Appellate Tribunal (NCLAT) on October 15, 2018, the rating agency said.

Further, in January 2019, two SPVs of IL&FS demanded a refund of the debt payment executed by them post October 15, 2018 from their trustees. "Despite a ring-fenced structure and adequate cash flows to service the debt obligations, the SPVs have asked the trustees to stop debiting the SPVs` escrow account towards its future obligations," ICRA said.

As on December 31, 2018, the exposure of HDFC-STDF and HDFC-BPSU to HREL stood at 0.55 per cent and 0.29 per cent of asset under management of the schemes (AUMs), respectively. ICRA said as on December 31, 2018, the exposure of UTI Banking and PSU Debt Fund, UTI BF and UTI DBF to JSEL stood at 6.87 per cent, 5.98 per cent and 6.25 per cent of the AUM of the schemes, respectively, ICRA said.

As on December 31, 2018, the exposure of Aditya Birla Sun Life Short Term Opportunities Fund to JRPICL stood at 1.15 per cent of AUM. According to ICRA, in case, of delays in honouring its obligations by SPVs, the ratings for these SPVs are likely to be downgraded, thereby impacting the credit score of the mutual fund schemes having exposure to these SPVs.

"The ability to rebalance the portfolios for these schemes within a month of rating action will remain a key rating driver. ICRA will continue to monitor the portfolios of these schemes regularly and take appropriate rating action as and when required," the statement added.