scorecardresearch

Cutting Exposure: Franklin MF replies to Sebi’s Vodafone Idea query

The Sebi chief also said that the Association of Mutual Funds in India (Amfi) has prescribed the metrics on what should fund houses do if the debt instruments fall below investment grade.

The Securities and Exchange Board of India (Sebi) had sought comments from the fund house.
The Securities and Exchange Board of India (Sebi) had sought comments from the fund house.
The Securities and Exchange Board of India (Sebi) had sought comments from the fund house.
The Securities and Exchange Board of India (Sebi) had sought comments from the fund house.

Franklin Templeton MF has replied to a query by market regulator after the fund house marked down its entire exposure in Vodafone Idea. The Securities and Exchange Board of India (Sebi) had sought comments from the fund house. On January 16, the fund had marked down its entire investment in the telco to zero even though the debt papers were above investment grade and later segregated the portfolio in six of its debt schemes. Sebi chairman Ajay Tyagi told FE on Tuesday, “We had asked the comments from the fund house regarding the issue of Vodafone Idea, but I don’t have any latest update on it.”

A spokesperson for Franklin Templeton said, “We have responded to a routine query received from the regulator, related to our exposure in Vodafone Idea. We continue to act in accordance with Sebi regulations and the best interest of our investors, and are happy to provide any further information that Sebi may seek in the future.” The data from Value Research shows that exposure by various fund houses to the debt papers issued by Vodafone Idea stood at Rs 3,389.77 crore as on December 2019. Fund houses such as Nippon India MF, Aditya Birla Sun Life MF and UTI MF also have investments in Vodafone Idea.

The Sebi chief also said that the Association of Mutual Funds in India (Amfi) has prescribed the metrics on what should fund houses do if the debt instruments fall below investment grade. “If the debt papers are below the investment grade they have to follow the matrix, but if its above investment grade it’s a call of fund house.”

Any debt paper — which is equal or above (BBB-) — is considered as above investment grade, while lower than that is considered below investment grade.

When Franklin marked down its investments, Vodafone Idea had ratings of BBB- (rating watch with negative implications) by Crisil Ratings. But later, Crisil and India Rating & Research on January 24, downgraded non-convertible debentures of Vodafone Idea worth Rs 3,500 crore. While Crisil downgraded the NCDs of Vodafone Idea to ‘Crisil BB’ from ‘Crisil BBB-‘, India Ratings and Research downgraded long-term issuer rating of the company to ‘IND BBB-’ from ‘IND BBB’.

The downgrade comes on account of potential payout against the adjusted gross revenue (AGR) related liability after Supreme Court (SC) dismissed the review petition filed by telecom companies. Total debt of Vodafone Idea stood at Rs 99,660 crore as on September 2019, according to Bloomberg data.

Get live Share Market updates and latest India News and business news on Financial Express. Download Financial Express App for latest business news.