FT debt investors see year of pain, with glimmers of hope

Various cases related to the freeze, including over whether investor consent is a prerequisite for liquidation, have made their way to court. A closing vote finally took place in December 2020 and investors gave their consent.

This was followed by an order from the Supreme Court to begin distributing the accumulated money in February. So far, about ??26,000 crore which was liquidated, investors received ??12,084 crores in cash ( ??9,122 crore in February and ??2,962 crore in April).

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The Supreme Court also appointed SBI Funds Management Pvt. Ltd to dispose of the assets of the programs and oversee the distribution of the money received, thereby filling the confidence gap of investors who were skeptical of the liquidation by Franklin Templeton himself.

In the midst of a difficult year for Franklin investors who have been denied access to their own money, there are some glimmers of hope. The net asset values ​​(NAV) of the plans have not declined significantly due to defaults or downgrades, with the defaults of the Future Group companies in September 2020 being a notable exception. Investors overall have been paid around 46% of their money so far, although recoveries vary from plan to plan. (See table).

SBI Funds remains confident in the divestiture of most of Franklin’s assets over the next two months despite second wave of covid, said CEO Vinay Tonse mint in a recent interview.

If only a small fraction of the illiquid papers remain, a decision by Franklin to take them into his own books could allow investors to shut the matter down, as the asset management company did with the papers. JSPL debt in 2016.

“We are confident that the portfolio investments remain strong and can be monetized at fair value within an appropriate time frame under normal market conditions. We are not, however, in a position to make forward-looking statements regarding monetization, ”said a spokesperson for the fund company in response to a report. mint to question.

A heated debate has erupted among industry experts over whether investors should exit the remaining Franklin programs (other than the six debt funds being wound up). AMC retains approximately ??60,000 crore of these assets and funds with great brand recognition such as Franklin India Bluechip and Franklin India Prima.

Prime Investor, a mutual fund research portal, asked investors to exit these programs on April 7. On the equities side, he pointed to an underperformance in recent years, which has seen a concentrated rally in the stock market.

According to Prime Investor, the past year saw a catch-up from Franklin Templeton, which broadly follows a value investing style, but the catch-up hasn’t been strong enough.

On the debt side, a loss of investor confidence can trigger panic and trigger buyouts in plans other than the six being wound up. This may force affected systems to sell well-rated holdings to deal with buybacks, Prime Investor pointed out.

Alternatively, it can force the fund company to hold a large amount of cash to deal with such an eventuality and it eats away at returns, the research portal noted.

Prime Investor has also expressed concerns about the exit of management talent from the troubled fund house.

A spokesperson for Franklin Templeton, however, dismissed these concerns. “We have a stable and experienced portfolio management team. The Indian Emerging Markets Equity team has over 20 years of successful investment experience in the Indian stock market. The team members have an average experience of around 16 years in the industry and seven years of service with the company, ”he said.

However, the picture on the ground is mixed. While senior fund managers have stayed put so far, the fund house has seen high profile exits in its marketing team. Media reports also suggest a possible exit of the fund company from the country, with the business being sold to a competitor or liquidated.

“Franklin Templeton’s commitment to India remains steadfast. We were the first to enter the Indian mutual fund industry and have remained a part of the industry even though many other global asset managers have decided to leave. We do not intend to withdraw from our business in India and any speculation to suggest otherwise, or any rumors regarding the sale of our business in India are incorrect and simply rumors, ”said a Franklin spokesperson. Templeton in response to a mint questioning on the subject.

Other experts have taken a more measured point of view. “Take a specific diet call. For example, if you are comfortable with the growth style of the Franklin US Opportunities Fund, there is no reason to opt out due to the events in India. The same goes for their other equity funds: quit if there is sustained underperformance and not otherwise, ”said Vishal Dhawan, founder of Plan Ahead Wealth Advisors.

“When it comes to fund risk, the size of the asset is so important that a sale to another AMC is more likely than a wholesale exit and a return of money to investors. If that really happens, you can make a decision at this point rather than now based on who they are selling, ”he said.

Kaustubh Belapurkar, Director of Fund Research at Morningstar Advisor India, made a distinction between existing investors and new investors.

“On the equity side, if you are an existing investor, the buyout at this stage would be premature. The court process is still ongoing and the equities team remains stable with funds being managed with a consistent style. If there are any team changes in the future, then you can look at this question. New investors may want to consider other options until there is greater clarity on the issues at hand, ”he added.

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Carol M. Barragan

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