Home / Money / Personal Finance /  Franklin Templeton MF marks down exposure to Essel, Reliance ADAG Group

On 9 March, Franklin Templeton Mutual Fund marked down its exposure to various Reliance ADAG and Essel Group companies by around 90%. The fund house holds debt issued by these companies across various debt schemes, secured by shares in group companies. The mark downs resulted in sharp drops in the Net Asset Value (NAV) of various Franklin Templeton schemes ranging from -0.36% in Franklin India Income Opportunities Fund to -3.27% in Franklin India Low Duration Fund. According to a note released by the fund house, this was due to a fall in the value of shares given as collateral against this debt. The mark downs are sharper than those taken by independent valuation agencies.

Scheme and its NAV fall (as of 9th March 2020)

  • Franklin India Low Duration Fund -3.27%
  • Franklin India Credit Risk Fund -1.54%
  • Franklin India Short Term Income Plan -1.19%
  • Franklin India Dynamic Accrual Fund -0.40%
  • Franklin India Income Opportunities Fund -0.36%

A note by the AMC pointed to the global stock market rout following the outbreak of the coronavirus. “Longer than expected time to monetize assets has increased dependency on listed share collateral for recovery. All these factors and due to continued stress in the issuer groups we have further marked down NCDs of Essel Infraprojects Ltd, Reliance Big Pvt. Ltd and Reliance Infrastructure Consulting & Engineering Pvt. Ltd to reflect the same at fair value," it said.

The affected debt securities had already been downgraded to D or default status and had seen a write down. The current move by Franklin has simply increased the extent of the write down. Referring to the Reliance ADAG companies, the note said “earlier on February 24, 2020, the NCDs were valued based on a cumulative haircut of 72.99%. On March 09, 2020, FT has marked down the security by 95% of Face Value (FV) on a cumulative basis,". In case of Essel debt, the previous mark down was 50% (on 5th December 2019). This has now been increased to an 85% write down.

“Investors should be wary of credit risk funds. By credit risk I don’t just mean fund classified as credit risk but any fund following an aggressive credit risk strategy," said Amol Joshi, founder, Plan Rupee Investment Services. “Investors should follow asset allocation, even in debt," he added.

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