Franklin Templeton Mutual Fund has said it is working towards resolving all the legal issues regarding the winding up of its six debt schemes at the earliest in order to efficiently monetise assets and return money to investors.
In a letter to investors, Franklin Templeton MF President Sanjay Sapre has updated them on the winding up process of six debt income schemes.
Franklin Templeton on April 23 closed six debt schemes citing the redemption pressure and lack of liquidity in the bond market.
Giving details of the ongoing cases in courts regarding the winding up of schemes, Sapre said that Supreme Court (SC) on June 19 considered the special leave petition and the transfer petition filed by the fund house.
Now, all the pending legal cases relating to the winding-up of these six schemes would be transferred to a division bench of the Karnataka High Court and the SC has directed that the matter be completed within three months.
"This may reduce the litigations and expedite the resolution," he said.
"I can understand that the delay due to various legal cases has added to your disappointment and inconvenience. We are doing our best to have these resolved at the earliest so that the schemes can start to efficiently monetise assets and return money to your money," he said.
Sapre also said that two of the schemes undergoing winding-up have surplus cash and the fund house will take appropriate steps to distribute the money to the unitholders at the earliest.
"In this regard, we will file an appeal before the Hon'ble Karnataka High Court seeking vacation of the stay order issued by the Hon'ble Gujarat High Court," he said.
He informed investors that the e-voting and unitholders' meet for the six schemes under winding up cannot be conducted till the stay order issued by the Gujarat High Court is vacated.
"Meanwhile, we have been working to analyse the portfolio of each scheme and develop a monetisation strategy for each of the securities in the portfolio," he added.
The schemes continue to receive maturities, pre-payments and coupon payments. However, an efficient monetisation of assets and distribution of investment proceeds will be possible only after obtaining consent of the unitholders, Sapre wrote.
He assured investors that the fund house is making progress despite the delay due to various legal cases. From April 24 to June 15, the schemes have received Rs 1,964.21 crore from maturities, pre-payments, and coupon payments.
Two of the six schemes (Franklin India Ultra Short Bond Fund & Franklin India Dynamic Accrual Fund) have repaid their bank borrowings and are cash positive. These schemes can start repayments to investors subject to a successful unitholder vote.
"We anticipate that Franklin India Ultra Short Bond Fund will have in excess of 7 per cent of its AUM (assets under management) available to distribute to unitholders by the end of June 2020, and Franklin India Dynamic Accrual Fund could have in excess of 6 per cent of AUM by this same time," he noted.
Sapre also said two bonds issued by the Essel Infraprojects were unable to honour their principal payment on May 22. Four of the six impacted schemes have investments in these bonds.
He informed investors that the fund house has initiated necessary legal actions for recovery.
He, further, said bonds issued by Reliance Big Entertainment were unable to meet their interest payment obligation due on June 14. Five of the six impacted schemes have investments in these bonds.
"We are exploring options for invocation of pledged shares as well as the corporate guarantee and are taking appropriate legal advice on the same," said Sapre.
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