Franklin MF takes 50% haircut on exposure to Essel group-backed firm

Franklin Templeton Mutual Fund (MF) has taken a 50 per cent haircut on exposure to Diligent Media Corporation - the holding company backed by Essel group, that operated the DNA newspaper.  

The fund house had Rs 412 crore of exposure to non-convertible debentures (NCDs) of Diligent Media Corporation, spread across five of its schemes. This includes the outstanding interest payments.

In a note, Franklin Templeton MF, said, "Post the downgrade, the NCDs are now valued by FTMF at 50 per cent of the face value with effect from 12 December 2019, based on standard Amfi prescribed haircut. It may be noted that these NCDs are also backed by personal guarantee of Mr Subhash Chandra."

On Thursday, ICRA had downgraded the NCDs of Diligent Media Corporation to B, from BB. The agency said, "the long-term rating revision factors in the poor liquidity position and continued weak performance of Diligent Media."

Further, the fund house highlighted that the rating agency had not considered the credit enhancement from Zee Media Corporation, which has a "satisfactory" operating performance and is rated BB by CARE.

"We have also incorporated the personal guarantee of Mr Subhash Chandra with respect to our exposure," the fund house pointed out.

The NCDs held by the fund house's schemes will mature in June, 2020.

The schemes exposed to these NCDs were Franklin India Income Opportunities Fund (exposure of 1.2 per cent of net assets), Low Duration Fund (0.3 per cent exposure), Dynamic Accrual Fund (0.5 per cent), Credit Risk Fund (0.2 per cent) and Short Term Income Plan (1.1 per cent exposure).

ICRA pointed out that Essel group's promoters refinancing ability has weakened significantly in the current scenario. The rating agency expects repayment by Diligent Media to be met through refinancing or partly through asset sale.

Earlier in the month, the fund house had marked down its exposure to Essel Infraprojects, spread in four of its schemes. This was after Brickwork ratings downgraded the long-term and short-term bank facilities of the company to the default grade 'D'.