As per court filings by the asset manager, Franklin Templeton India is expecting its six debt schemes to receive INR 3,529 crores in bond repayments by October. This amount is besides the INR 3,829 crores that it has received already.
This update comes across as a relief for investors in the schemes; even though the fund will not be able to repay them immediately due to litigation.
Out of the INR 25,000 crores that Templeton owes to its 3,00,000 investors; by the end of October, it would have received INR 7,358 crores.
On April 23, the trustees of Franklin Templeton decided to close down six of its credit-oriented debt schemes, citing illiquidity and severe redemption pressure as the underlying reasons. However, because of Gujarat High Court’s stay on the winding-up process ordered on 3 and 8 June, these schemes have not started refunding their investors yet.
On 7 August, the Karnataka High Court will finally hear Templeton’s appeal against the stay; and will also hear the unit holders who claim that Templeton cannot legally wind down schemes without the consent of its investors. These unitholders believe that the asset manager violated regulations in the investments.
Ever since it's winding up, Templeton has received INR 3,829 crores from coupon payments, prepayments, and scheduled maturities. Bear in mind that this amount has been realized without the ability to even actively monetize these portfolio securities. These payments are expected to be realized from credit issuers across the spectrum, including reputed corporates, little known entities, and others like PNB Housing Finance Ltd, Edelweiss Rural and Corporate Services Ltd, DLF Ltd, Uttar Pradesh Power Corp. Ltd, Vedanta Ltd, Tata Motors Ltd, Rivaaz Trade Ventures and Power Finance Corp. Ltd.
Another accusation against Templeton is that it was the sole bond buyer of 26 of 88 entities that it had lent to. As per the fund manager, of these 26 entities, 23 have been very regular in their scheduled payments. There has been no default payment concerning these investments. The three defaulters include Engineers and Essel Infraprojects, Reliance Infrastructure Consulting, and Reliance Big.
Franklin is taking active steps to enforce the security and to recover funds for unitholders.
Franklin Templeton stated that SEBI’s cap on investing in unlisted bonds was a major factor for winding-up of the schemes. Ever since the rule came into effect from October 2019, the fund house has been able to generate INR 6,211 crores by selling these unlisted bonds.
This exposure reduced from INR 14,215 crores in October 2019 to INR 8,004 crores in April 2020. INR 6,211 crores cash was raised from unlisted securities between October 2019 and April 2020; and these funds were put to use to meet redemption requests.