In More Trouble For Mutual Funds, Franklin Templeton Hit By New Default

The maturity value of the NCDs was Rs 616 crore

Franklin Templeton Mutual Fund said on Friday that it is evaluating recovery proceedings against Essel Infraprojects Limited (EIL), which defaulted on the maturity obligation of non convertible debentures (NCD) currently valued at Rs 92 crore. “The NCDs are backed by a pledge of listed shares of Zee Entertainment Enterprises Ltd (ZEEL), Dish TV India Ltd, unlisted shares of EIL, personal guarantee of Mr Subhash Chandra and corporate guarantee,” US-based Franklin Templeton – which wound up six of its debt schemes in India last month – said in a release on Friday.

Out of the six debt mutual fund currently being wound up, four had exposure to the NCDs. These four schemes are: Franklin India Low Duration Fund, Franklin India Dynamic Accrual Fund, Franklin India Credit Risk Fund and Franklin India Short Term Income Plan.

Franklin Templeton said the NCDs are currently fair valued at Rs 92 crore in its portfolios after a haircut of 85 per cent. The maturity value of the NCDs, including redemption premium, was Rs 616 crore. The issuer was unable to meet the obligation on the maturity date of May 22.

As far as proceedings are concerned, the mutual fund house has appointed a legal counsel and is looking to get maximum recovery.

“We have appointed a legal counsel and are actively considering all necessary actions to maximise recovery value. The schemes will continuously monitor the developments in EIL and take appropriate steps in the best interest of its unit-holders,” Franklin Templeton said.

The fund house also said the event does not have any impact on the net asset values (NAVs) of the schemes as of May 22, compared to their NAVs as of May 21. 

“This only reflects the realisable value basis the current share cover and does not indicate any reduction or write-off of the amount repayable by Essel Infraprojects. The valuation would be monitored daily and the receivable will be adjusted to reflect any material change in the share cover (listed equity shares),” Franklin Templeton added.

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