The Supreme Court on March 18 accepted the standard operating procedure (SOP) submitted by SBI Mutual Fund (SBI MF) for winding up six schemes of Franklin Templeton’s schemes.
FT MF’s obligations
The SOP, reviewed by Moneycontrol, states that FT MF will be required to share all transaction documents, including term sheets and any other information, that SBI MF may need to monetise the debt securities.
In case there is a credit event that results into a default or there is a possible legal dispute, FT MF will be responsible to pursue such legal cases or recovery against issuers of such debt securities, the SOP states.
The trade deals will be done by FT MF’s employees “on deputation” to SBI MF.
“Access to systems used by FT MF for these schemes will be provided to SBI MF and to such person on deputation from FT MF, only under authorisation from SBI MF,” the SOP read.
All transactions related to these six schemes shall be done only after the authorisation is given by SBI MF.
Updating SBI MF on progress so far
Before SBI MF starts the process of selling the debt securities, FT MF will be required to give an update on the status of existing efforts that the fund house has taken to wind up the six schemes.
This would include the status of any negotiations that FT MF has initiated with bond issuers for early or partial repayments or any discussions with buyers, who are interested in purchasing the debt securities.
Under guidance of SBI MF’s debt CIO
The decision on selling securities will be “as decided under the guidance” of debt chief investment officer at SBI MF.
SBI MF will use the one-to-many platforms to sell the debt securities as it has adequate liquidity, and there is buying interest on the request for quote (RFQ) platforms.
In case there isn’t enough demand or the valuations offered are below acceptable levels, SBI MF will use the over-the-counter market to get quotes for the debt securities.
For securities, that may not have a “ready wider market demand”, SBI MF may seek bids through negotiations with potential buyers, either directly or through intermediaries.
In case of events like put/call options on bonds, interest rate reset or default, FT MF will be required to actively track such developments and suggest actions or alternatives to SBI MF.
Effective date of transfer
The SOP states that the effective control for liquidation will be from the day the “securities and balances stand transferred to SBI MF”. This will be treated as the effective date of transfer to SBI MF.
The fund house will sell these securities in Franklin Templeton Mutual Fund’s (FT MF) schemes on a best-effort basis.
However, if SBI MF is not able to sell some of the securities, then these will be transferred back to FT MF to take “necessary action”.
Also read: Can liquidate 40-50% of Franklin Templeton's debt fund assets within a month: SBI MF
SBI MF will not bid for any securities to avoid conflict of interest.
Opening of new bank accounts
SBI MF will open new bank accounts with State Bank of India or HSBC Bank. All the existing bank balances will be transferred by FT MF to these accounts, which will be operated by SBI MF.
So, any pre-payments, maturity proceeds or coupon payments on the debt securities, will be credited into these bank accounts for the respective schemes.
For example, SBI MF A/c Franklin India Low Duration Fund Operative A/c will receive the payments for the debt securities held by FT MF’s Low Duration Fund.
Setting up a special team
SBI MF wants to set up a team headed by an officer of SBI MF, who is not below the ranking of vice-president in the company. This team would be assisted by two mid-level officials and employees of FT MF, who have never seen any disciplinary or regulatory action ever initiated against them.
“We look forward to supporting SBI in the monetisation of the portfolio,” a Franklin Templeton spokesperson said.
The FT MF schemes have distributed Rs 9,122 crore to unitholders and hold another Rs 1,370 crore in cash as on March 15, 2021.
The FT spokesperson added that NAVs of all six schemes are now above the NAVs that these schemes had on the date of winding up.