The Supreme Court on December 3, ’20 issued an interim order allowing the Trustee of Franklin Templeton to conduct the e-voting process for winding up the six debt mutual fund schemes. The court further directed market regulator SEBI to appoint an observer to oversee the voting exercise. The results of this vote along with the report of the observer shall be submitted in a sealed cover to the Hon’ble Supreme Court. The redemptions in these schemes will continue to be stayed till the next date of hearing.
The trustees of Franklin Templeton have partnered with KFin Technologies (KFintech) to conduct the electronic voting process, and unitholders meet. The electronic voting portal will remain open for voting from 09:00 Hrs IST on December 26, ’20 till 18:00 Hrs IST on December 28, ’20. Unitholders meet will be held on December 29, ’20. The meeting will be held via videoconferencing, and the unitholders can attend it from their home.
Login credentials for the electronic voting process, and the link for electronic voting portal and unitholders meet, will be sent to the registered email ID and mobile number of the investors. The login credentials are unique for each scheme that the investor has invested in. If an investor is unable to cast his/her vote during the electronic voting process, then they can cast their vote during the meeting for that respective scheme on December 29, ’20.
“The objective of the voting exercise is to seek consent, by ‘simple majority’, 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. Consent will be sought from the unitholders for each scheme separately,” said Sanjay Sapre, President, Franklin Templeton Asset Management (India) Pvt. Ltd., in a letter to the investors.
As a unitholder, you have two choices:
• Vote “Yes” in favour of the orderly winding up – A “Yes”vote will allow the Trustee to proceed with the next step which is seeking unitholder authorization. Post this, the Trustee or any other authorized person can proceed with monetization of assets and distribution of monies to Unitholders. This will also mean that the schemes will not be required to make a distress sale of portfolio securities to fund redemptions.
• Vote “No” against the orderly winding up – A “No”vote will mean the funds will be required to re-open for purchases and redemptions. The schemes may suffer significant losses due to the need to sell securities at distress prices to fund heightened redemption volumes.
Franklin Templeton believes that unitholders should vote ‘Yes’
“We seek your consent for the orderly winding up and believe this will result in the best possible outcomes for unitholders under the current circumstances. In normal market conditions, the opportunity to liquidate assets at fair value will increase with time,” said Sanjay Sapre.
- From April 24 to November 27, ’20, the schemes under winding up have received over ₹ 11,576 crores from maturities, pre-payments, and coupons. Out of the ₹ 11,576 crores, the schemes have received ₹ 2,836 crores in the month of November ’20.
- Four of the six schemes are already schemes. The cash available for disbursement as on November 27, ’20 stands at ₹ 7,226 crores for these four schemes, subject to fund running expenses.
- Individually, Franklin India Low Duration Fund, Franklin India Ultra Short Bond Fund, Franklin India Dynamic Accrual Fund and Franklin India Credit Risk Fund have approx. 48%, 46%, 33% and 14% of their respective AUM in cash as on November 27, ’20.
- The outstanding borrowing (net of cash available for repayment of borrowings) in Franklin India Short Term Income Plan stands at approx. ₹ 62 crores (1% of AUM) and in Franklin India Income Opportunities Fund, at approx. ₹ 305 crores (18% of AUM) as on November 27, ’20.
In the letter, Mr. Sapre also said, “I would also like to assure you, that voting for an orderly winding up does not mean a lengthy wait for return of monies. Once we receive a majority “Yes” vote in favour of the orderly winding up of the schemes, we will immediately proceed with a second vote to seek approval of the unitholders as required under regulation 41 of SEBI (Mutual Fund) Regulation 1996 to authorize the Trustee, or any other person, 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.”
As per the company, a “No” vote will re-open the funds for purchase and redemptions. This may trigger emergency selling of assets at lower prices to meet the redemption pressure, and this may erode the wealth of the investors.
Disclaimer: Mutual Fund Investments are subject to market risk. Please read the scheme related documents carefully and consult your financial advisor before making any kind of investment.
