‘Most investors voted to shut 6 Franklin debt MFs’

‘Most investors voted to shut 6 Franklin debt MFs’

Most unitholders in the six debt schemes of Franklin Templeton Mutual Fund have voted in favour of shutting down the products. The Supreme Court made this observation on Monday during the hearing of a petition filed by Franklin challenging an earlier ruling by Karnataka High Court that had asked the fund house to obtain the consent of the unitholders before shutting them down.

About 96-98% of the unitholders in the schemes voted for winding up, according to people familiar with the matter. The apex court said objections to the observer’s report can be filed within three days, said lawyers aware of the developments. The Court has now posted the hearing further on January 25.

“We are thankful to our unitholders for voting overwhelmingly in favour of the orderly winding up of the six schemes,” said a spokesperson of Franklin Templeton Mutual Fund.

The fund house hopes to commence distribution of investment proceeds at the earliest on the basis of the directions of the Supreme Court in the next hearing on January 25, the spokesperson said.

Mutual fund distributors said the unitholders’ consent has removed a major hurdle to monetize assets of the six shuttered schemes of Franklin Templeton. With investors voting in favour of winding up schemes, they will have to vote once more on the two options on scheme monetization.

“Investors have found merit in winding up the schemes. After another voting formality, they should be able to start getting money from these schemes by end of February or early March,” says Amol Joshi, Founder, Plan Rupee. The market conditions now are much more conducive for liquidation of the less liquid debt papers as compared to April – June 2020, he said.

Franklin had unexpectedly shut down these debt schemes handling roughly Rs26,000 crore of investor money on April 23 as it was struggling to handle redemption pressure due to illiquid securities in the portfolios and crisis in the bond market.

In the next vote, unitholders can either authorise the Trustees assisted by Kotak Mahindra Bank as independent advisor and supported by the asset management company (AMC) or empower DeloitteTouche Tohmatsu India LLP assisted by the AMC, which will be advised by Kotak, to oversee the monetisation of the remaining debt securities.

“The liquidators’ job is to ensure that investors get right price for the asset at the earliest,” says Kirtan Shah, CFP, Sykes and Ray Equities. For example, Franklin India Ultra Short-Term Fund, the largest scheme with assets of Rs 10,177 crore, could pay out about 60-65% to unitholders by early March.

The six schemes have received total cash flows of Rs. 13,789 cr as of January 15, 2021 from maturities, pre-payments and coupon payments since April 24, 2020. The cash available as of January 15, 2021 stands at Rs.9,190 crore for the five cash positive schemes. 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 (assets under management) in cash. Borrowing levels in Franklin India Income Opportunities Fund is 6% of its AUM.

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