On 5th December, Brickwork Ratings downgraded bank facilities of Essel Infraprojects worth ₹1,832.42 crores to D (default) on the grounds that the issuer was not co-operating with the ratings agency. Following this Franklin Templeton AMC has written down 50% of its roughly ₹500 crore exposure to the company. Four schemes of Franklin Templeton AMC – Franklin India Low Duration Fund, Franklin India Short Term Income Fund, Franklin India Credit Risk Fund and Franklin India Dynamic Accrual Fund have exposure to Essel Infraprojects according to data from Rupeevest, as of 31st October. As a percentage of assets, the exposures range from 4.11% in case of Franklin Low Duration to 0.49% in case of Franklin Dynamic Accrual Fund.
“Brick Work Ratings took up with Essel Infraprojects Limited several times to provide the required information over emails. Despite the best efforts of BWR to get at least the minimum required information for a review, the entity has not provided the same. In the absence of adequate information from the Company, BWR is unable to assess the Company’s financial performance, its ability to service its debt and maintain a valid rating," the rating agency said in a note.
A person with knowledge of the matter who declined to be named said that the exposure was backed by collateral of shares in Zee Entertainment and Dish TV. He added that the collateral was greater than the amount owed to the fund house but the fund manager would exercise the collateral as per his discretion. He added that the specific paper held by Franklin was not downgraded but the AMC had proactively taken the measure. Franklin Templeton amended its schemes to allow for side pocketing on November 22th. However due to the mandatory 1 month exit-load free period that has to be given to investors, side pocketing cannot be carried out against the Essel paper.