The first meeting of the trustees and the unitholders of the six debt schemes that Franklin Templeton India was held on Tuesday. The fund house’s President, Sanjay Sapre, denied allegations that some investors may have withdrawn their money before redemptions were suspended. Sapre said that this was an allegation and there was no evidence supporting such a claim. “The redemption patterns don’t appear to indicate any difference in redemptions with respect to specific individuals or advisors,” he said. The meeting was held over video calls, as part of the four-day voting exercise.
Tuesday was also the last day for unitholders of the six schemes of Franklin Templeton to vote on whether the schemes should be wound up or not. According to people who attended the meeting, unitholders asked questions to trustees relating to when they would get their money back and what they could lose if schemes are re-opened for redemptions.
Other queries related to the progress made in the recovery of amounts stuck in some underlying companies, whether the forensic report would be made public etc.
“Trustees re-iterated that a ‘yes’ vote was in favour of unitholders, while a ‘no’ vote can lead to re-opening of schemes (subject to Supreme Court directions), which can hurt the value of investments,” says Amol Joshi, founder of Plan Rupee Investment Services, who attended the meeting along with his clients. Sapre, along with the trustees, represented Franklin Templeton India Mutual Fund.
What happens to money stuck in troubled companies?
Franklin India Short Term Income Plan’s (FISTIP’s) funds are stuck in companies such as Essel Group, Anil Dhirubhai Ambani Group (ADAG) and Yes Bank. Sapre said that the fund house has approached the courts for speedy recovery. About the scheme’s holding in Future Group, Sapre said “pending the merger transaction between Future Group and Reliance Retail, which is going through the approval process and remains sub-judice, our borrowing is intended to be repaid in full from the proceeds of that transaction for the Future Group,” he said.
However, he said that it was not possible to comment on the status of this transaction at this point of time.
Some unitholders also asked about the Additional Tier-1 (AT-1) bond holdings of Yes Bank, which the bank had written down. These bonds also lie in FISTIP’s segregated portfolio. Sapre said that the fund house had moved the court, along with other bondholders and mutual funds that had exposure.
Longer-maturity papers in FIUSBF
Unitholders asked why there were certain investments in Franklin India Ultra Short Bond Fund (FIUSBF), maturing in 2025, when the scheme was meant for shorter duration investments.
Aside from taking the date of the last maturing security in the scheme’s portfolio, Sapre said that “many of these securities may have earlier exit options in terms of put calls or interest rate resets.” He added that the fund house has been able to recover money quickly and prematurely, ever since it wound up its schemes.
When asked why only Franklin Templeton wound up its schemes when other fund houses’ debt schemes continued life as usual, Sapre said that FT’s schemes had significant exposure to below AAA-rated securities. He pointed out that these schemes of Franklin Templeton were running a “differentiated yield-oriented strategies, which were communicated. This market segment was ‘disproportionately’ affected amid the liquidity crunch in the debt markets caused by the COVID-19 pandemic.”
When will investors get their money back?
If a majority of the unitholders vote ‘yes,’ then Sapre said that schemes holding a positive cash level would be able to start returning money soon, albeit in instalments. Schemes such as Franklin India Income Opportunities Fund (FIIOF) that still have to repay to banks, are expected to see significant drop in borrowings. Sources say that one of its underlying companies recently paid back its dues to the fund house. FISTIP, which will be cash-positive by December-end, is the other scheme with significant exposure to securities of this particular company, sources say.
When some unitholders asked why the findings of forensic audit report on management of schemes by Franklin Templeton were not being shared with them, Sapre pointed out that both the Karnataka High Court and Supreme Court had directed SEBI to submit the findings to them in a sealed cover.
The results of the vote, along with the scrutiniser’s report and the SEBI-appointed observers’ report
will be shared with the Supreme Court. The SC will hear the matter next in the third week of January and give further directions.