Franklin gets ‘yes’ vote for winding up the six debt MFs

Staff Writer   /   January 19, 2021
franklin templeton mutual fund

The Trustee of Franklin Templeton Mutual Fund in India, with the permission of the Hon’ble Supreme Court, had sought the consent of the unitholders under regulation 18 (15) (c) to wind-up the schemes.

The unitholders consent vote took place from December 26 to December 28, 2020 followed by the Unitholders meet via video conference on December 29, 2020.

The result of the e-voting has been announced by the Supreme Court. Out of the total number of unitholders who cast their votes, over 96% of unitholders have voted in favour of the winding up of the six schemes. 

The voting results indicate the fund house would now not be required to resort to a distress sale of its underlying assets. This means it would be an orderly winding-up. 

“We are thankful to our unitholders for voting overwhelmingly in favour of the orderly winding up in all 6 schemes. We deeply appreciate the support of our investors and partners and hope to commence distribution of investment proceeds at the earliest, subject to the directions of the Hon’ble Supreme Court. The next hearing in this matter is scheduled to take place on January 25, 2021,” said Sanjay Sapre, President, Franklin Templeton Asset Management (India). 

The top court will next meet on January 25 to give directions on how the funds in the schemes should be paid back to the unitholders.
Five of the six schemes are cash positive, with the cash available at Rs 9,190 crore as of January 15, 2020. The final cash available for distribution will be subject to some fund-running expenses.

In April 2020, Franklin Templeton had taken the controversial step of winding up six of its debt schemes. It had cited extreme illiquidity in the market that had got accentuated by COVID-19. 

The latest update as on January 15, 2021 is as follows:

  1. From April 24, 2020 to January 15, 2021, the six schemes under winding up have received Rs 13,789 cr. from maturities, pre-payments, and coupons. Over the latest fortnight (January 1 – 15), the schemes received Rs. 669 cr., of which Rs. 617 cr. was received as pre-payments.
  2. Franklin India Short Term Income Plan turned cash positive recently taking the total number of cash positive schemes to five. The five cash positive schemes have Rs 9,190 cr. available to return to unitholders as on January 15, subject to fund running expenses. Individually, 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 63%, 50%, 41%, 26% and 9% of their respective AUM in cash.
  3. The inflows received across 6 schemes is nearly 41% higher than anticipated in the maturity profile published for April 23, 2020.
  4. Borrowing levels in Franklin India Income Opportunities Fund currently stand at 6% of AUM.
  5. Of the Rs 13,789 cr. 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.

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

This points to the fact that the securities held in the funds can be monetised at fair value if given appropriate time under normal market conditions, Franklin Templeton said in a statement.

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