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The six debt funds proposed to be wound up by Franklin Templeton Mutual Fund have collected Rs 183 crore in the fortnight ended February 15, almost 70% less than Rs 602 crore collected in the January 16 – 29 period. Certain lumpiness has been noticed in the funds collections previously as well because in some periods pre/repayments are significant while in some periods they are quite low.

The six schemes have received total cash flows of Rs 14,573 crore so far from maturities, coupons and prepayments. We are not giving the AUM or cash levels of schemes for the fortnight because payments were started on Monday and the figures provided by Franklin are as on February 15. 

The big news this week, however, was about FT making some payments to unitholders. Payment to all investors whose accounts are KYC compliant with all details available has been made by SBI Funds Management Pvt. Ltd. (SBI), Franklin said.

While the five cash positive schemes (Franklin India Low Duration Fund, Franklin India Ultra Short Bond Fund, Franklin India Dynamic Accrual Fund, Franklin India Credit Risk Fund and Franklin India Short Term Income Plan) have distributed cash of Rs 9,122 crore available as of January 15, 2021, the balance amount will be distributed in tranches without waiting for liquidation of all securities in the portfolio. The only scheme with borrowings (sub 5%) is Franklin India Income Opportunities Fund.

“We have initiated discussions with SBI and will keep you informed about progress made on monetization,” Franklin Templeton MF said.

Fortunately, the NAVs of all the six schemes were higher as on February 15, 2021 vis-à-vis their respective NAVs on April 23, 2020, the date on which the winding up decision was taken.

The Supreme Court, in its order dated 12 February 2021, upheld the results of the e-voting under regulation 18(15)(c) held in December 2020 and confirmed the winding up of the six schemes. The apex court also appointed SBI Funds Management as the authorized person under regulation 41 to take next steps on monetization.

In April last year, Franklin shut down subscriptions and redemptions while proposing to wind up the six debt schemes citing Covid-induced illiquidity in credit markets.

In what could allay some fears of losses, Franklin Templeton Mutual Fund has disclosed that in 5 out of 6 debt schemes to be wound up the NAV as on January 29, 2021 is higher than the NAV on April 23, 2020, the date on which the winding up decision was taken. 

The 5 schemes mentioned above are Franklin India Low Duration Fund, Franklin India Ultra Short Bond Fund, Franklin India Dynamic Accrual Fund, Franklin India Credit Risk Fund and Franklin India Short Term Income Plan.

There have been unsubstantiated reports alleging FT investors in the 6 debt schemes can lose 40-50 per cent. However, the NAV data disclosed by the fund-house shows a different picture altogether. 

The decision to voluntarily wind up six schemes has been one of the most difficult decisions for the AMC and its lakhs of investors. Franklin, all the while, has maintained that the decision to wind up those schemes was taken with the sole objective of safeguarding value for investors. 

The NAV values have improved in most of the schemes on account of the cash generated in these schemes over the last 9 months.

“For one scheme (Franklin India Income Opportunities Fund), the NAV is only marginally lower, ” said Sanjay Sapre of Franklin Templeton in an investor communique. 

Further, the combined AUM of the six schemes has increased from Rs 25,648 crore on April 23, 2020 to Rs 26,414 crore as on January 29, 2021.

Recently, the Supreme Court permitted the distribution of available cash in the schemes and directed that an amount of Rs 9,122 crore (distributable surplus as of January 15, 2021) be distributed to the respective unitholders in proportion to their holdings in the schemes under winding up.

Already, across the six schemes under winding up, an overwhelming majority of unitholders (around 96% by unitholders) voted in favour of the winding up. While some reports have alleged that due processes were not followed for the voting, the Supreme Court has so far not  given any order on this issue. 

From April 24, 2020 to January 29, 2021, the six schemes under winding up have received Rs 14,391 crore from maturities, pre-payments, and coupons. Some of this cash has been used to repay borrowings.Fiv

Five schemes have turned cash positive and have Rs 9,698 cash available to return to Unitholders. 

The inflows received across 6 schemes are nearly 46% higher than anticipated in the maturity profile published on April 23, 2020.

The borrowing level in Franklin India Income Opportunities fund, the only fund with outstanding borrowing, has steadily come down from 37.55% on April 24, 2020 to 5% at the end of January 2021.

It will be pertinent to note that of the Rs 14,391crore received since April 24, 2020, slightly more than half of this amount has been received from securities rated “A”, followed by securities rated “AA”. Much of this cash has been generated from securities which were unlisted, or where FT was a majority holder – nearly 28% of the cash is from unlisted securities and nearly 75% of the cash is from securities where the schemes are the sole or majority holders.

Most importantly, this cash has been received without any secondary market sale (active monetization) of securities in the six schemes. 

The next Supreme Court hearing in this matter is scheduled for February 9, 2021.

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