Sebi, not EOW, should handle mutual fund issues: Franklin Templeton

 Franklin Templeton Asset Management India (FTAMIL) has said the Securities and Exchange Board of India (Sebi) -- rather than the Economic Offences Wing (EOW) – should deal with issues related to mutual fund investments.

“We have the utmost respect for all statutory authorities, including EOW. However, we believe that Sebi, the specialised regulator for the securities market, is best placed to handle any issues related to mutual fund investments,” Templeton said in a note to unitholders on Monday.

Last week, the EOW of the Chennai Police registered a first information report (FIR) against FTAMIL and Franklin Templeton Trustee Services for an alleged criminal conspiracy to defraud 300,000 investors by causing wrongful loss to them and unlawful gain to themselves.

The FIR had also named Santosh Das Kamath, MD and chief investment officer, FTAMIL, Sanjay V Sapre, whole time member, FTAMIL, and their directors Jayaram Subramaniam Iyer, Vivek Kudva, RV Subramaniam, and Pradip P Shah, among others.

“Please do not believe unsubstantiated rumours and baseless accusations… Since the business has been carried out in compliance with the applicable laws and all decisions were taken in the best interest of our unit holders, we are confident about the outcome of any true and fair investigation conducted in this regard,” Templeton said, adding that the press release issued by Chennai Financial Markets & Accountability (CFMA) citing the FIR, was replete with various misleading and baseless allegations.

Templeton said that the schemes under winding up had received over Rs 7,184 crore from maturities, prepayments and coupons since April 24: “Four out of the six schemes are already cash positive. These amounts have been generated without the ability to efficiently monetise the portfolio.”

The note said that mutual fund assets of these schemes are held with Sebi-registered custodians and their portfolios retain value according to their respective NAVs, which are published daily based on the valuation of two independent valuation agencies. “The books of the six impacted schemes are regularly audited by internal auditors, statutory auditors, auditors appointed by the regulators and none of them have ever made any observation regarding misutilisation of funds by the schemes,” Templeton said.

The asset manager reiterated that it had acted in the best interest of unitholders and the aim was to return monies of wound-up schemes as soon as possible in accordance with the applicable regulations, and subject to the decision of the Karnataka High Court, which had completed hearing the arguments on this matter.

Trying to resolve legal issues, return investor's money: Franklin Templeton

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.