Franklin investors demand cash back

Four out of six debt schemes that Franklin Templeton India wound up in April have turned cash-positive, prompting unitholders aggrieved by the closure to demand the return of up to ₹2 lakh per investor.

The schemes were wound up on 23 April amid severe redemption pressure, prompting some investors to move court. Since then, the six schemes have received over ₹6,486 crore. These investors on Friday filed an intervening application before the Karnataka high court to direct the asset management company (AMC) to return money to those who invested in the schemes which turned cash-positive.

“Direct the AMC to refund dues at least up to ₹2 lakh per unitholder in four of the six schemes that have turned cash-positive and in which borrowings have been repaid as disclosed by the respondents,” the petition said. The four schemes turned cash-positive in August, after repaying loans taken to meet redemption pressures.

In an email, a spokesperson for Franklin Templeton, said the court is hearing the matter. “The interpretation of the regulation in this regard is currently under the consideration of the Hon’ble Karnataka High Court, and it would be inappropriate to comment on the same. We will be happy to distribute the investment proceeds realized by the schemes in compliance with the applicable regulations and as per directions, if any, received from the Hon’ble Karnataka High Court,” said the spokesperson.

Franklin India Low Duration Fund and Franklin India Credit Risk Fund turned cash-positive on 31 August. The cash held in Ultra Short Term Bond fund is now 31% while Dynamic Accrual Fund has cash level of 14%. However, despite turning cash-positive, the fund house cannot distribute the proceeds as the winding-up process has been stayed by the Gujarat high court. The Karnataka high court, which is hearing all the appeals, has not lifted the stay.

During 1-31 August alone, the six schemes received ₹2,206 crore from various issuers. Of this, a big chunk came from Vedanta Ltd, which repaid a total of ₹1,050 crore in interest and principal on 17 August.

Barring payment issues by a small number of issuers such as the Future Group, Essel and Reliance Group, all other investee companies in Frankin Templeton’s portfolio have made the payments as scheduled. The bond-holders which have paid their dues during the past four months include Hero Energy, Clix Capital and Piramal Group.

The petitioners have based their appeal on a Securities and Exchange Board of India (Sebi) circular of May 2016, which said an AMC can stop redemptions for 10 days in case of excessive redemption pressure, but “even in that period, redemptions up to ₹2 lakh per unitholder would not be withheld”.

“It is submitted that the said directive issued by Sebi was issued in the interest of small investors who had small holdings so as to ensure that even in a period of liquidity pressures, the mutual fund should not completely squeeze out the liquidity of the unitholders,” the application said.