Franklin Templeton MF receives final Rs 1,398 crore payment from Vodafone Idea
Franklin Templeton Asset Management (India) has received a total sum of Rs 1,398 crore as part of the payment of interest on bonds held from telecom company Vodafone Idea on September 1. According to the fund house, this payment represents the full and final settlement.
The payout will be processed by extinguishing all outstanding units in the plans of the segregated portfolio of the respective schemes. These schemes include Franklin India Low Duration, Franklin India Short Term Income Plan, Franklin India Credit Risk, Franklin India Dynamic Accrual, and Franklin India Income Opportunities Fund.
This payment marks a significant development in the ongoing saga involving Vodafone Idea’s financial situation and the impact on its bondholders. Franklin Templeton’s receipt of these funds provides some resolution for the affected schemes and their investors. The settlement reflects the company’s commitment to managing the interests of its investors and optimizing the returns on their investments.
The bonds in question were held in 13 segregated portfolios of the specified schemes, and investors who hold units in these schemes’ side pockets will receive their respective payouts in their bank accounts in the coming days.
A segregated portfolio, commonly referred to as a side pocket in the mutual fund industry, is established to ensure that only investors who were exposed to the scheme on the day of a credit event can benefit from subsequent recoveries of dues and any improvements in the credit profile.
For accounting purposes, the bonds or assets held in these side pockets are initially valued at zero until the money is recovered from the bond issuers. Side pockets allow the bond schemes to operate similarly to other bond schemes, and investors can engage in transactions involving units of these schemes.
Franklin Templeton Mutual Fund has clarified that the principal and interest payments (gross amount) were received from Vodafone Idea Ltd for the 10.90 percent bond. After deducting operating expenses, this amount will be distributed to investors in proportion to their holdings in the plans of the segregated portfolio. This payout represents a significant step in addressing the fallout from Vodafone Idea’s financial challenges and offers investors in the affected schemes some resolution and compensation for their investments.
The distribution of the gross amount available to unitholders will be subject to the permissible deduction of operating expenses as per SEBI regulations. After these deductions, the net amount will be distributed to the unitholders.
For units held in demat mode, the record date has been set as September 8. Unitholders or beneficial owners of the segregated portfolio of the scheme under various plans/options whose names appear in the records of the registrar/depositories as of the relevant date will be entitled to receive the recovery proceeds.
It’s important to note that the payout will be subject to compliance with applicable regulations and the deduction of tax at source (TDS), as per prevailing tax laws and regulations. This ensures that all financial transactions associated with the payout are in accordance with legal requirements and regulations, and that appropriate taxes are withheld as necessary.
The situation involving payments from Yes Bank, which are also held in segregated portfolios, remains pending. Franklin Templeton Mutual Fund had written off these investments, and the matter is currently sub judice in the Supreme Court.
Regarding the debt investments in Vodafone Idea, Franklin Templeton Mutual Fund’s schemes marked them down to zero in January 2020, following the Supreme Court’s dismissal of the telecom firm’s review petition regarding Additional Gross Revenues (AGR) liability, which amounted to over Rs 44,000 crore.
Subsequently, these debt papers were downgraded to below investment grade, leading to the schemes placing these debt securities in a side pocket or segregated portfolio on January 24, 2020. This action was taken to address the credit risk associated with these investments and to protect the interests of the investors in the affected schemes.
SBI Mutual Fund announced last month that it had successfully completed the liquidation of assets in the six debt schemes that were shut down by Franklin Templeton Mutual Fund. As part of this process, SBI Mutual Fund distributed approximately Rs 27,500 crore to the unitholders of Franklin Templeton’s schemes.
Franklin Templeton had taken the decision to shut down these six debt mutual fund schemes in April 2020, citing reasons including redemption pressures and a lack of liquidity in the bond market. The completion of the liquidation process by SBI Mutual Fund represents a significant step in resolving the situation and providing returns to the unitholders of the affected Franklin Templeton schemes.
