The document discusses credit investment style and events from the past year. It notes that many lending institutions relied solely on credit ratings rather than borrower creditworthiness, and focused on yield-to-maturity over liquidity and ability to repay. The philosophy discussed focuses on safety, liquidity, and returns through evaluating borrower ability and willingness to pay, adequate asset coverage, and risk-adjusted yields. Due diligence plays a key role in credit assessment using both quantitative checks like debt ratios and qualitative checks like management quality.

1. CREDIT
INVESTMENT
STYLE!

2. Credit Events – The Year Gone By
BORROWERS ASSET LIABILITY MISMATCH
Mutual Funds and Banks witnessed short-term asset funding gap
DIVERGENCE BETWEEN CREDIT RATING & MARKET RATES
Most of these lending institutions solely relied on the credit rating of the
borrower, rather than relying on the credit worthiness of the company
FOCUS ON YIELD-TO-MATURITY (YTM’s)
Rather than focusing on the liquidity position of the company and its ability
to repay debt, lenders were chasing YTM’s.

3. Focus on Security Selection
COMPANY SHORTLISTED FOR INVESTMENT
Past track record of the company
Assessment of Management
Risk & Business Risk
Credit Due Diligence
Asset Quality Cash Flows

4. Our Philosophy: Safety, Liquidity & Returns (SLR)
01
02
03
Safety
Liquidity
Returns
•Evaluate borrower's Ability + Willingness to
service debt
•Focus on adequate asset cover
•Strong actionable covenants for individual
securities in the transaction documents
•Ensure Asset- Liability match
•Active Duration Management
•Focused on Risk adjusted Yield-to-Maturity
and not just Yield-to maturity
•Enhance returns through managing
duration rather than under security risk

5. Due Diligence plays a Key Role
Debt / EBITDA: To measure income for repayment of debt
Debt / Net Cash Accruals: To measure the ability of the
business to cover its debt through its cash accrual
Debt / Equity: To measure the company's liabilities by its
shareholders equity.
Current Ratio & Debt Service Coverage Ratio: To
measure the cash flow available to pay its current debt
obligations.
Interest Cover Ratio & Sensitivity Analysis: To
measure the cash flow available to pay its interest obligations
under various market scenarios
Promoter / Corporate Group: To understand
managements expertise, vision and mission
Corporate Governance: To understand the company's
framework under which it is operated, regulated and controlled
Quality Of Board & its independence: To understand
managements ability and willingness
Quality & Sustainability of Earnings
EBITDA- Earnings before interest, tax, depreciation and amortization
*It may be noted that this list is indicative and not exhaustive
QUANTITATIVE CHECKS QUALITATIVE CHECKS
Credits are assessed on the basis of various Quantitative and Qualitative parameters

6. Pure Bottom-Up Perspective
Portfolio
Construction
• Deal Sourcing
• Background check
• Risk based pricing
• Liquidity management
• Credit evaluation
• Strong structuring covenants
• Risk adjusted yield analysis
• AMC level exposure
• Diversification
• Credit Approval
• Macro View
• Adherence to scalable
mandates
• Continuous monitoring
STEP
01
Credit Approval
& Monitoring
STEP
03
Credit
Evaluation
STEP
02
Segregation
of risk and
investment
functions
Independence
Four eyes
A safe investment is an investment whose dangers are not at that moment apparent
-Lord Bauer, Economic Advisor to Margaret Thatcher

7. Client selection
CREDIT
SELECTION
Bottom up approach
for due diligence
Market perception
Different security, different
covenants, different
compulsions
Rating:
One of the inputs, not
the only input!
A man I do not trust could not get money from me on all the bonds in Christendom.
- J.P. Morgan

8. Concentration Management
Investing across
instruments of
different maturities
Internal limits
on Group level
Exposures
Internal limits
on exposure
to individual
securities
Our
Concentration
Management
strategy
STRONG CHECKS AND BALANCES
 No. of Securities
 Average Exposure to each securities in each
scheme
 Top ten holding
 Number of Instrument with more than 5%
exposure
 Number of Group with more than 10%
exposure
 Investor Level concentration limit
 Credit Approval with No Individual Signing
Authority
These are in line with the regulatory limits.
There are decades when nothing happens and then there are weeks when decades happen! - Lenin

9. Chasing the Yield–to-Maturity (YTM) through SLR
Security ABC
(Rated AAA) YTM -7.85%
Security XYZ
(Rated AAA) YTM -8.25%
RISK ADJUSTED YTM = RISK FREE RATE +
RETURN TO COMPENSATE FOR INTEREST
RATE RISK, LIQUIDITY RISK & CREDIT RISK
Higher return generally comes from taking higher risks?
Risk should be dealt with caution, taking calculated risk
is important for the overall portfolio
For illustrative purpose only.

10. IPRU Exposure to securities that were downgraded to D
Security Name
Month of
Downgrade
to D
IPRU Exposure
at the time of
Downgrade
Security Name
Month of
Downgrade
to D
IPRU Exposure
at the time of
Downgrade
IL&FS Financial Services Ltd. Sep-18 0 Sintex Industries Ltd. Jun-19 0
IL&FS Ltd. Sep-18 0 IL & FS Education and Technology Services Ltd. Jul-19 0
IL&FS Transportation Networks Ltd. Sep-18 0 Reliance Home Finance Ltd. Aug-19 0
Kwality Ltd. Sep-18 0 Sintex-BAPL Ltd. Aug-19 0
IL&FS Energy Development Company Ltd. Oct-18 0 Altico Capital India Pvt Ltd. Sep-19 0
IL & FS Tamil Nadu Power Co. Ltd. Jan-19 0 Reliance Broadcast Network Ltd. Sep-19 0
Jharkand Road Projects Implementation Co
Ltd.
Jan-19 0 Business Broadcast News Holdings Ltd. Sep-19 0
Jorabat Shillong Expressway Ltd. Mar-19 0 Sprit Infrapower & Multiventures Pvt Ltd. Oct-19 0
Hazaribagh Ranchi Expressway Ltd. Apr-19 0 Edisons Infrapower & Multiventures Private Ltd. Oct-19 0
Reliance Commercial Finance Pvt Ltd. Apr-19 0 Simplex Infra Dec-19 0
Dewan Housing Finance Corporation Ltd. Jun-19 0 Essel Infra Dec-19 0
Reliance Big Pvt Ltd. Jun-19 0 Yes Bank Ltd. Mar-20 0
Reliance Infrastructure Consulting &
Engineers Pvt Ltd.
Jun-19 0
Total IPRU Exposure at the time of Downgrade = NIL
* IPRU - ICICI Prudential Mutual Fund Schemes

11. Thank You
Mutual Fund investments are subject to market risks, read all scheme related documents carefully