Asset manager Franklin Templeton’s India unit is in the process of appointing an independent adviser to aid the winding-up of its six yield-oriented, managed credit funds.
The six schemes with total assets under management of ₹25,856 crore were shut down on 23 April owing to severe illiquidity and redemption pressures caused by the covid-19 pandemic.
Winding up a mutual fund scheme requires taking approvals from trustees, a majority of unit holders and the Securities and Exchange Board of India (Sebi), besides refunding money to unit holders.
Typically, the process involves the trustees calling for a meeting of unit holders to approve the winding-up by a simple majority and vote on any other necessary steps. However, lockdown hurdles are forcing Franklin to seek electronic voting alternatives.
“We are currently working on the process of seeking approval through electronic or other means, considering the operational hurdles posed by the covid-19-related lockdown.
We are also working to appoint an independent advisor to assist the trustees (in addition to the services of the asset management company) in the process of winding-up," a Franklin Templeton spokesperson said in response to Mint’s queries.
Note, that the lack of a positive outcome in voting could delay the process of liquidating the assets of the scheme, and paying the proceeds to unitholders, he added.
After a simple majority is received, the trustee can dispose of the assets of the schemes in the best interest of unit holders, and proceeds of the sale will be utilized towards discharging liabilities, such as the loans taken from banks. And the balance will be paid to unit holders proportionate to their holdings as on the day the winding-up decision was taken.
While Sebi regulations allow AMCs to borrow up to 20% of net assets of the scheme, Franklin Templeton has sought and received special permission from Sebi to increase the limit to 40% for some of the schemes, the spokesperson said.
According to a person with direct knowledge of the matter, the borrowings of Franklin Templeton for these six schemes is ₹2,500-3,000 crore. The interest for these borrowings is 8% MCLR rate or marginal cost of fund based lending rate.
Liquidating these assets will also take different time durations. For some securities, the maturity is as soon as within three months and for some, it is as distant as five years, as per the maturity details disclosed by Franklin Templeton on its website.
The AMC is also talking to the issuers in case the dues against bonds can be recovered ahead of maturity, Franklin Templeton India president Sanjay Sapre said in a podcast on 28 April.
Once the proceeds of the sale are distributed to unit holders, the trustees will make a report which will be sent to Sebi and unit holders with details of circumstances leading to winding-up, steps taken for disposal of assets, expenses, net assets available for unit holders and a certificate from the fund’s auditors.