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JP Morgan AMC Isolates Amtek Bonds Into A Side Pocket, Will Allow Redemptions of the Rest

JP Morgan, which has been in the news because if refuses to let people exit short term funds (currently has a gate of 1% per day), has now offered a redemption proposal to “segregate” its funds.  The Proposal is complex but basically it’s like this:

  • If you own 5000 units of the fund today
  • You will continue to own 5000 units of the fund tomorrow
  • But you will get additional units of a new “segregated” fund containing the Amtek Auto bond (illiquid asset)
  • The NAV Of the current fund will fall since you are effectively splitting assets
  • But the net value of the total investment is the same
  • You will be able to redeem your investment in the current fund in full, like earlier (no gates)
  • The “segregated” fund, containing Amtek Auto bonds, will only be paid out once they realize money off the bonds.

This is great for those that have invested and want their money out, like the Startup Oyo Rooms, or one of the giants mentioned in this article. These companies have over 400 cr. in the two schemes and even if they accept that they will be hit on the Amtek auto portion (10% in one fund and 5% in the other), they still can’t exit from the rest due to the gate. Now they will be able to.

It was time enough: JP Morgan AMC lost 1900 cr. in AUM in august, which is more than 10% of the AUM they have.

So What About Amtek Auto?

Amtek Auto’s bond that is up for redemption on September 20 is the one that is held by JP Morgan AMC’s troubled schemes.

Does this mean that JP Morgan AMC expects no chance of the bonds getting redeemed on time? If Amtek doesn’t pay – and it has 800 cr. to pay along with interest of 10.75% – then this arrangement makes sense. JP Morgan AMC will then have to work through the default process, court action and so on, to sell whatever was secured against this bond or to force Amtek Auto to raise funds elsewhere and pay back. This could take time, so when they do recover money they’ll pay out.

But if Amtek Auto does pay up – like it has recently assured investors – the segregation needn’t have been done. So it looks like if JP Morgan AMC has taken this step already, they don’t believe they will get paid on time. Does this mean Amtek Auto defaults? What happens to the rest of its debt then?

This next week is going to be very interesting for Amtek Auto.