Franklin Templeton MF sidepockets Voda Idea debt following NCD downgrade

Fund house has carved out separate portfolios in six schemes to hold the exposure

Franklin Templeton Mutual Fund (MF) has decided to create segregated portfolios (side pockets) to hold the debt paper of Vodafone Idea (VIL) separately, after the telecom company’s debentures were marked down to below-investment grade. 

“(Our) board of trustees has approved the creation of segregated portfolios in Franklin India Low Duration Fund, Franklin India Dynamic Accrual Fund, Franklin India Credit Risk Fund, Franklin India Short Term Income Plan, Franklin India Ultra Short Bond Fund and Franklin India Income Opportunities Fund,” it said. 

Effective from last Friday, when ratings agency CRISIL downgraded VIL’s non-convertible debentures to BB, a rating below investment grade. The earlier rating was BBB-negative. CRISIL said it was maintaining a ‘rating watch with negative implications’.

The agency said the revision reflected expectation of a significant deterioration in VIL’s financial risk profile, due to the potential payout against the adjusted gross revenue (AGR) related liability, payable shortly. 

However, it did also note that the actual liability could be lower than the Rs 44,150 crore provided for by the company in its accounts. CRISIL has said VIL’s liquidity of Rs 15,390 crore as of end-September would not suffice if payout of licence fee liability continues to remain part of the overall dues.  

Franklin Templeton MF had Rs 2,073 crore of exposure to VIL at end-December in six of its schemes. On January 16, it had formally marked down its exposure to ‘zero’, as a 'prudent measure' to protect its unit holders. The markdown was the same day that the Supreme Court (SC) rejected VIL’s review plea pertaining to the over Rs 40,000 crore in AGR-related dues to the government.