The Hindu Business Line : Mutual funds hope to gain from RIL merger -- Await Crisil rating upgradation

ALLIANCE Capital Mutual Fund, two of whose schemes hold more than 10 per cent of their net assets in debt securities issued by Reliance Petroleum Ltd, hopes to cash in on the Reliance Industries-Reliance Petro merger.

Alliance Income Fund, the flagship debt scheme in the Alliance stable, expects a substantial increase in its exposure to top-rated securities, following what the fund managers feel will soon be an upgrade from Crisil.

The credit rating agency, said Mr Deepak Mungla, Country Sales Manager at Alliance, has already indicated that Reliance Petro's debentures will be upgraded to `AAA' status from the present level of `AA+'.

The upgrade is expected to happen on the completion of merger formalities.

About 93 per cent of the income fund's portfolio will then be in assets rated AAA and P1+ (and sovereign paper), he told Business Line.

According to Mr Vineet Udeshie, Head of fixed income at Alliance, "The re-rating as `AAA' would cause a change in yields on RPL debentures of about 80-90 basis points.

Depending on the duration of the debentures we hold, this would lead to a gain ranging from 1.6 per cent to 2.4 per cent in value''.

The MF, which has been investing in Reliance Petro's debentures for the past one year and more, is not certain as to how the merger will really impact the fund's NAV.

Mr Udeshie, however, has noted that ``all other factors remaining the same'', the merger will have a positive impact on the valuation.

Alliance Income Fund currently has an NAV of about Rs 18.70 in the growth option.

Alliance, incidentally, feels that its allocation to Triple-A securities is among the highest among the better-known income schemes.

Some of the others that hold Reliance Petro are JM (JM Income Fund), Pioneer ITI (Income Builder Account, Short Term Income Plan) and Birla Sunlife (Birla Bond Plus, Birla MIP).

Credit rating circles are keenly tracking developments related to the merger. International rating major Moody's, for instance, has confirmed its senior unsecured `Ba2' debt rating for Reliance Industries.

The confirmation, Moody's has stated, is reflective of, inter alia, the conservative nature of the financing, resulting in moderate deterioration in debt protection measures.

Fitch Ratings India too has put its `Ind AA+' rating of Reliance Petro on watch with positive implications.

As for Alliance Monthly Income, the credit quality profile is substantially oriented towards top-rated paper — nearly 45 per cent in the AAA/P1/sovereign category. The average portfolio maturity here is around 4.17 years.

The MF, Mr Mungla mentioned, had decided to further expand on the debt side with another scheme, the proposed Alliance Short Term Fund.

The scheme, which is yet to be cleared by the securities regulator, will be positioned between its liquid (Alliance Cash Manager) and income fund. The short-term fund, he noted, could well attract institutional investors in the present circumstances.

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