Aditya Birla Sun Life, Franklin Templeton funded Amaravati project via investor inflows into MFs

Amid questions being raised on the future of the $715-million Amaravati Sustainable Infrastructure and Institutional Development Project, data from Mutual Funds India reveals that two big asset management companies (AMCs) -- Franklin Templeton Asset Management (India) Pvt and Aditya Birla Sun Life Asset Management Co (ABSL) -- have invested around Rs 1,300 crore in these bonds as of June-end, reports Moneylife.

Amaravati Bonds 2018 were issued by the Andhra Pradesh government's nodal agency -- Capital Region Development Authority (CRDA). These 10-year bonds had a five-year moratorium clause, or the waiting period before principal repayments start. With guarantee from the state government and a low-risk rating from agencies, the debt instrument was oversubscribed 1.53 times, raising Rs 2,000 crore for the project.

CRISIL, Brickwork Ratings and Acuité Ratings & Research had rated the bonds as A+(SO), AA-(SO) and AA-(SO), respectively, with stable outlook.

Now, mutual funds will be unable to redeem the principal amount because of the five-year moratorium period.

Problems began brewing when Andhra Pradesh saw a regime change after the May elections, with YS Jaganmohan Reddy from the YSR Congress Party replacing Telugu Desam Party’s N Chandrababu Naidu as Chief Minister.

The situation came to a boil on July 15, when the World Bank withdrew its $300 million funding to the project, saying that the Centre had withdrew its request for financing.

Soon after the World Bank release, Asian Infrastructure Investment Bank (AIIB) withdrew its $200 million commitment.

These investment grade bonds, which were backed by the Naidu-led state government and acres of procured land, offered interest at 10.332 percent per annum, payable quarterly. The principal amount was to be redeemed after five years in five equal instalments of 20 percent each. The repayment structure raises questions on the decision of Franklin Templeton, which invested Rs 1,023 crore, and ABSL, which has infused Rs 297 crore of investor money in mutual funds.

Political uncertainties were either overlooked or not anticipated by the AMCs. The bifurcation of Telanaga and Andhra Pradesh in 2014 added to the strain of carrying on the project on procured lands.

Reddy claimed that there were corruption and irregularities in sanctioning the project, while Naidu accused the present CM of killing the project.