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Franklin isolates Voda debt

Franklin Templeton had earlier marked down its investment in the securities issued by Vodafone Idea to a value of zero

By Our Special Correspondent in Mumbai

  • Published 26.01.20, 12:11 AM
  • Updated 26.01.20, 12:11 AM
Market regulator Sebi had earlier allowed mutual funds to segregate distressed assets in the portfolio of their debt schemes
Market regulator Sebi had earlier allowed mutual funds to segregate distressed assets in the portfolio of their debt schemes (Shutterstock)

Franklin Templeton Mutual Fund on Saturday said its board of trustees has approved the creation of segregated portfolios in six of its schemes.

These include Franklin India Low Duration Fund, Franklin India Dynamic Accrual Fund, Franklin India Credit Risk Fund, Franklin India Short Term Income Plan, Franklin India Ultra Short Bond Fund and Franklin India Income Opportunities Fund.

This comes as the schemes had exposure to debt securities issued by Vodafone Idea. The fund house had disclosed that they had exposure to “10.90 per cent Vodafone Idea and 8.25 per cent Vodafone Idea securities” issued by the telecom firm.

Franklin Templeton had earlier pointed out that after the downgrade of the 8.25 per cent security of the telecom firm by Crisil to BB rating with negative implications, it wanted to create a segregated portfolio for these securities with effect from January 24.

“With effect from January 24, various securities issued by Vodafone Idea in the schemes will be segregated from the total portfolio. This decision has been taken in order to protect the value for existing unitholders in these schemes,” the fund house added.

Market regulator Sebi had earlier allowed mutual funds to segregate distressed assets in the portfolio of their debt schemes. Called side-pocketing, it is a mechanism that separates distressed, illiquid and hard-to-value assets from other more liquid assets in a portfolio.

It prevents the distressed assets from hurting the returns generated from more liquid and better-performing assets, which can lead to panic redemptions in a scheme.

It may be recalled that Franklin Templeton had marked down its investment in the securities issued by Vodafone Idea to a value of zero.

“We would like to reiterate that this fair valuation only reflects the realisable price of the relevant securities on the date of valuation and does not indicate any reduction or write-off of the amount repayable by Vodafone Idea. We continue to engage with the company in the best interest of our investors,” the fund house had said.

Following this, media reports had suggested that Sebi had asked Franklin Templeton Mutual Fund to explain why it took its decision even before any action was taken by the rating agencies.

The fund house had denied the reports and clarified that it did not receive any query from Sebi in this regard.

Vodafone Idea has been under pressure after the Supreme Court dismissed the review petitions of telecom operators on the payment of the adjusted gross revenues dues.

The companies have later filed a modification application in the top court, seeking more time for the payment of the statutory dues. The court has agreed to hear the plea in the coming week.

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