Franklin Templeton Mutual Fund on September 1, 2023 announced that it has received Rs 1,398 crore from Vodafone Idea as payment for investment in its debt instruments. The amount will be distributed among investors who have holdings in the segregated portfolios.
The amount will be given to unitholders in proportion to their holdings in the plans of the segregated portfolio, the fund house said.
“We have received the annual interest amounting to Rs 148.34 crore and the full value of the principal due on maturity amounting to Rs 1,250 crore from Vodafone Idea Ltd for the security (non-convertible debenture) on September 1, 2023, and held in the five segregated portfolios,” Franklin Templeton Mutual Fund said.
According to the Franklin Templeton Mutual Fund, this is the full and final payment, and the payout will be processed by liquidating all outstanding units in the plans of the said segregated portfolio of respective schemes.
The full redemption will done based on the net asset value (NAV) as of September 1, 2023.
These bonds were part of 13 segregated portfolios spread across five schemes offered by Franklin Templeton, including Franklin India Low Duration, Franklin India Short Term Income Plan, Franklin India Credit Risk, Franklin India Dynamic Accrual, and Franklin India Income Opportunities Fund.
Investors holding units of these schemes’ side pockets will receive the money in their bank accounts in the next few days, with the record date for units held in demat mode scheduled for September 8, 2023.
All the unitholders or beneficial owners of the segregated portfolio of the scheme under various plans and/or options whose names appear in the records of registrar/depositories as on September 1, 2023 shall be entitled to receive recovery proceeds.
Franklin Templeton Mutual Fund had previously segregated its exposure to the telecom player in January 2020, isolating various securities issued by Vodafone Idea within the schemes. This segregation was prompted by the downgrade of Vodafone’s securities, which might have led to a potential impact on the portfolio’s NAV.
If an issuer of a security fails to pay interest or sees a downgrade to below investment grade, those securities are segregated into another portfolio.
In this case, Vodafone’s securities were downgraded in 2020. A downgraded security in portfolio can cause the NAV to drop, forcing the fund to sell the good assets to meet redemptions.
Retail investors ultimately bear the brunt. So, the original scheme is now divided into a segregated portfolio that holds the distressed investment and the main portfolio that holds the remaining assets. No subscription or redemption is allowed from the segregated portfolio, and its units will be listed on a stock exchange to provide an exit option for unit holders.
By August-end 2023, SBI Funds Management had announced the successful liquidation of assets in six closed debt schemes of Franklin Templeton Mutual Fund, disbursing Rs 27,508 crore to unitholders.
Franklin Templeton had taken the decision to shut down these schemes in April 2020, citing redemption pressures and a lack of liquidity in the bond market.
