Franklin Templeton tells investors, re-opening six funds may result in losses; E-vote from December 26

By: |
December 07, 2020 2:11 PM

In a letter addressed to the investors, Franklin Templeton said that if unitholders vote against the order winding up, “the schemes may suffer significant losses due to the need to sell securities at distress prices to fund heightened redemption volumes.”

Individually, Franklin India Low Duration Fund, Franklin India Ultra Short Bond Fund, Franklin India Dynamic Accrual Fund and Franklin India Credit Risk Fund have 49%, 48%, 34% and 16% of their respective assets under management (AUM) in cash.After Franklin Templeton was dragged to legal corridors, the Supreme Court ordered the fund house to seek consent of unitholders for winding up the six schemes that it has already shut down.

Franklin Templeton India will conduct E-Voting from December 26 to 28, seeking consent of unitholders for the orderly winding up of its six debt mutual fund schemes. The fund house will be asking investors if they are in favour of the orderly winding up or if they are against it. In a letter addressed to the investors, Franklin Templeton said that if unitholders vote against the order winding up, “the schemes may suffer significant losses due to the need to sell securities at distress prices to fund heightened redemption volumes.”

The fund house said that it is seeking a simple majority from the investors to implement the decision taken by the Trustee to wind up the six fixed income schemes and thereby enable an orderly liquidation of assets and distribution of investment proceeds. While the voting will commence from 9 AM on December 26, it will continue till 6 PM on December 28. Further, post the voting, Franklin Templeton has also called for a meeting via video conference. The move to hold the E-voting comes after the Supreme Court, earlier last week, asked Franklin Templeton India to call a meeting of unitholders and seek their consent on the winding up of the schemes.

“A ‘Yes’ vote will allow us to proceed with the next step which is seeking unitholder authorization under Regulation 41,” the fund house said. If investors vote yes, Trustees of Franklin Templeton will proceed with monetization of assets and distribution of monies to Unitholders. On the other hand a ‘No’ vote will see the funds re-open for purchases and redemption. “The schemes may suffer significant losses due to the need to sell securities at distress prices to fund heightened redemption volumes,” they added.

“I would also like to assure you that voting for an orderly winding up does not mean a lengthy wait for return of monies,” said Sanjay Sapre, President, Franklin Templeton Asset Management (India). He added that if unitholders vote ‘yes’, Franklin Templeton will immediately proceed with a second vote to seek approval of the unitholders, to proceed with the winding up of the schemes. “The person authorised under regulation 41 would then be able to distribute the cash already available in the schemes and make further payments at regular intervals as the schemes monetize assets and receive cash-flows,” Sanjay Sapre added.

The six shut schemes have received over Rs 11,576 crores from maturities, pre-payments, and coupons till November 27. Four of these six are already cash positive. “Even though the schemes could not actively monetize the portfolio, the cash available for disbursement as on November 27, 2020 stands at Rs 7,226 crores for these four schemes, subject to fund running expenses,” the fund house said.

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