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MUMBAI :
The Securities and Exchange Board of India (Sebi) on Thursday eased the valuation policies of mutual debt funds to allow valuation agencies to make the decision not to declare a paper default if the interest payment delay or the expiration extension is due to a covid-19 related block.
“In view of the national blockade and the three-month moratorium / deferral on payment allowed by the Reserve Bank of India (RBI), a differentiation in default treatment should be made, as appropriate. whether that default occurred solely because of the loan lockout or moratorium, “Sebi said in a circular.
This is a relief for asset management companies (AMC) and valuation agencies, which were struggling with the valuation of debt documents and money market instruments, facing payment difficulties due to the blockade imposed to contain the covid pandemic. -19.
Until now, the valuation agencies rated the non-repayment of the bonds as default and therefore below investment grade.
However, AMCs may deviate from this practice after obtaining approval from administrators.
“Although prior valuation calls of this nature could be taken with the approval of the board of trustees, such a deviation was virtually very difficult to implement at the fund level,” said Mahendra Kumar Jajoo, director of fixed income at Mirae Asset Mutual Fund. ” “This relaxation for rating agencies will result in a more streamlined approach. The risk that such pricing simply delays a problem that subsequently arises again cannot be ruled out,” he added.
The regulator’s dispensation will help standardize the valuation of debt defaults by covid-19, according to Kaustubh Belapurkar, director of manager research, at Morningstar Investment Adviser India.
“There is a built-in requirement when obtaining approval from the trustees, but it would depend on AMC to AMC. Sebi now has a broad base, recognizing that it is a systemic problem and should be treated uniformly by all valuation agencies, “said Belapurkar.
The market regulator had been reluctant to offer a moratorium agreement for ₹1.5 trillion commercial paper and bond redemptions in the first quarter.
However, Sebi had been making it easier for rating agencies and mutual funds to value documents facing predetermined ratings due to the prolonged blockade across the country.
