Franklin Templeton Seeks Unitholder Nod To Wind Up Six Fixed Income Schemes
After the Supreme Court’s direction, Franklin Templeton Mutual Fund sought consent from unitholders for winding up six of its fixed income schemes.
The fund house, through a notice, informed unitholders that voting on the issue would take place electronically between Dec. 26 and Dec. 28. That’ll be followed by a meeting of the unitholders of the relevant schemes through video conferencing on Dec. 29, according to its media statement released on Monday.
If a majority of unitholders in any or all of the six fixed income schemes decide to vote ‘no’, thereby declining to give consent for winding up, the schemes will be re-opened and unitholders will be free to sell their units, it said.
Franklin Templeton, in its notice, has also cautioned that this could lead to distress selling, eroding the value of the assets under management. “The trustee is of the view that if the decision to wind up the scheme in an orderly manner is not implemented, it would precipitate a rush of redemptions, which would force a distress sale of the portfolio securities, likely resulting in a reduction in the net asset value of the scheme and substantial losses for unitholders.”
This comes after the Supreme Court on Thursday directed the asset manager to begin preparations within a week to convene a meeting of its unitholders to seek their consent. The top court also directed a stay on redemption payment being made to unitholders for the time being.
As on Nov. 27, the six mutual fund schemes had assets under management worth Rs 25,861 crore. Between April 24, when the winding up of the schemes was first announced, and Nov. 27, the six schemes had received cash inflows worth Rs 11,576 crore. Of the six, four schemes—the ultra-short bond fund, low duration fund, credit risk fund and dynamic accrual fund—were cash positive and had close to Rs 7,226 crore available to distribute to unitholders, according to the mutual fund’s last update.
The short-term income plan and income opportunities fund still owe money that was borrowed to meet redemptions in the run-up to the decision to wind up. As on Nov. 27, these two funds had outstanding borrowing worth 17% and 29%, respectively, of their assets under management. This will first have to be repaid before unitholders receive any proceeds from the schemes.
“An orderly winding up does not mean a lengthy wait for the return of monies,” the statement quoted Sanjay Sapre, president at Franklin Templeton India, as saying. If the fund house is able to garner support to wind up the six schemes, a second vote will be conducted to seek approval of the unitholders to authorise the trustee or any other person to proceed with the winding up of the scheme, he said.
“The schemes will then be able to distribute the cash already available and make further payments at regular intervals as the schemes receive cash flows from monetisation of assets,” Sapre said.