EQUITIES

Debt schemes issue: Franklin Templeton MF to file plea against Gujarat HC order

On April 23, six debt schemes collectively worth Rs 25,800 crore were wound down by Franklin Templeton MF due to the severe market dislocation and illiquidity caused by the Covid-19 pandemic.

Franklin Templeton Mutual Fund on Tuesday said that the six debt schemes, which were shuttered by the fund house in April, had received Rs 1,964.21 crore from maturities, pre-payments and coupon payments. The fund house also said that it would file an appeal before the Karnataka High Court seeking vacation of the stay order issued by the Gujarat High Court.

Sanjay Sapre, president at Franklin Templeton Asset Management (India), in its letter to investors on Tuesday said, as of June 19, 2020, the Supreme Court (SC) has considered the special leave petition and the transfer petition filed by Franklin Templeton. “All legal cases relating to the winding-up of these six schemes will be transferred to a Division Bench of the Hon’ble Karnataka High Court and the SC has directed that the matter be completed within three months. This may reduce the litigations and expedite the resolution,” said Sapre.

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On April 23, six debt schemes collectively worth Rs 25,800 crore were wound down by Franklin Templeton MF due to the severe market dislocation and illiquidity caused by the Covid-19 pandemic. On May 28, the fund houses had announced an e-voting process and unit holders’ meeting to seek approval for the same. Voting was scheduled to take place between June 9 and June 11, 2020, and the unit holder meet on June 12, 2020.

However, the fund house suspended e-voting and unitholders’ meeting after the Gujarat High Court dismissed Franklin Templeton MF’s plea to vacate the relief granted by the court of June 3. The Gujarat HC on June 3 had stayed the e-voting and unit holders’ meeting for winding up the six debt schemes closed by Franklin Templeton MF.

“The E-Voting and unitholder’s meet for the six schemes under winding up cannot be conducted till the stay order issued by the Hon’ble Gujarat High Court is vacated,” said Sapre. The fund house also said that Franklin India Ultra Short Bond Fund and Franklin India Dynamic Accrual Fund have repaid their bank borrowings and are cash positive. These schemes can start repayments to investors subject to a successful unitholder vote. In Franklin India Credit Risk Fund, the borrowing level has come down to 11.25% from its original level of 22.27% on April 24, 2020.

The fund house also stated that bonds issued by Reliance Big Entertainment were unable to meet their interest payment obligation due on June 14, 2020 and the put option (exercise date of June 15, 2020) has not been exercised as the security is already rated “D” and the next put option date is on September 14, 2020. “We are exploring options for invocation of pledged shares as well as the corporate guarantee and are taking appropriate legal advice on the same. Five of the six impacted schemes have investments in these bonds. These bonds are held in the portfolio at a marked down value and the share collateral is adequate to cover this value as of June 22, 2020,” added Sapre in the letter.

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