Franklin payouts may be delayed over authorisation for monetising holdings

Franklin Templeton Mutual Fund (FTMF) reached out to unit holders of its six discontinued schemes on Thursday, informing them that trustees would need their authorisation to monetise the holdings in respective schemes, without which the repayment process could get delayed.

“If Trustees do not receive authorisation to proceed with the disposal of assets, this may delay the process of monetising such assets and distribution of proceeds,” the fund house said. It added that the payment schedule/payouts could be finalised and implemented only after successful completion of the voting process.
 

Industry experts say in case of an unprecedented scenario of a deadlock in the voting process, the fund house would have to seek guidance from the regulator Securities and Exchange Board of India (Sebi) to take wind-up process forward.

“Investors should ensure they exercise their vote on whether they are willing to give authority to trustees to facilitate this winding-up process. Only after that can we go to the next stage of the wind-up,” said Amol Joshi, founder of Planrupee Investment Services.
 

“We will have to see how this plays out, given the current regulatory framework is not clear on the procedure to be followed in case a negative vote scenario takes place,” he added.

 

 

The fund house reiterated that the reason behind winding up the six schemes was to preserve the value for unitholders and return money at the earliest.
 

The combined asset size of the six wound-up schemes after adjusting for borrowing stood at Rs 24,630 crore as of April 30, 2020.
 

Regarding concerns over the maturity profiles of these schemes, the firm said the schemes would explore all possibilities to monetise the underlying assets in the portfolio, before their respective maturities. While the aim is to return the money well in advance of the maturity, Franklin will not resort to distress sales.
 

Further, it said that under Regulation 41 of the Securities and Exchange Board of India’s or Sebi’s (mutual fund) regulations, the wind-up process would require vote from unitholders to authorise trustees.
 

Franklin also clarified that voting in the ‘negative’ would not reverse the wind-up decision taken for the schemes, or lead to a restart of redemptions/fresh subscriptions in these schemes.
 

The fund house said borrowing levels in some of the wound-up schemes saw a marked reduction, as these started to see cash flows via coupons, scheduled maturities, and prepayments.

The investors will shortly receive an email from with a ‘notice’ related to the ‘voting process’. The voting activity will be conducted separately for each scheme. This means that if an investor has exposure to multiple of these schemes, they would have to vote separately for each one.
 

In an earlier note, the fund house had disclosed maturity profiles in six of its schemes. Ultra-Short Bond Fund had among the shortest maturity profile, with 81 per cent of its assets maturing within two years. For Low Duration Fund, 74 per cent of assets are to mature in same period.
 

For certain schemes, the maturity profile looked longer. For India Income Opportunities Fund, it would take three years for close to a third of the assets to mature.