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Franklin Templeton MF receives Rs 1,398 cr from Vodafone Idea

Franklin Templeton Asset Management (India) has received a total sum of Rs 1,398 crore for five of its schemes as part of the payment of interest on bonds held from telecom company Vodafone Idea on September 1.

As per the fund house, this is the full and final payment and the payout will be processed by extinguishing all outstanding units in the plans of the said segregated portfolio of respective schemes based on NAV as on September 1, 2023.

The five schemes are Franklin India Low Duration, Franklin India Short Term Income Plan, Franklin India Credit Risk, Franklin India Dynamic Accrual, and Franklin India Income Opportunities Fund.

The bonds were held in 13 segregated portfolios of these schemes, and investors holding units of these schemes’ side pockets will receive the money in their bank accounts in the next few days.

Segregated portfolio
A segregated portfolio – or a side pocket as it is called in the mutual fund industry parlance – is created to ensure that only investors exposed to the scheme on the day of a credit event can benefit from the subsequent recovery of dues and also any improvement in the credit profile.

The bonds (or assets held in such side pockets) are valued at zero for accounting purposes till the time the money is recovered from the issuers of the bonds. Side pockets allow the bond schemes to function like any other bond schemes and investors can transact in units of those schemes.

According to the fund house, principal and interest payments (gross amount) were received from Vodafone Idea Ltd for 10.90 percent bond.
“This amount (subject to deduction of operating expenses) shall be distributed to the investors in proportion to their holdings in the plans of the segregated portfolio,” Franklin Templeton Mutual Fund said in a note.

The gross amount available for distribution will be subject to the deduction of operating expenses as permissible under SEBI regulations and the net amount will then be distributed to the unitholders.

The record date for the units held in demat mode will be September 8.

All the unitholders or beneficial owners of the segregated portfolio of the scheme under various plans/options whose names appear in the records of registrar/depositories as on the relevant date shall be entitled to receive recovery proceeds.

The payout will be subject to compliance with applicable regulations and tax deducted at source (TDS).

Payments from Yes Bank, which are also held in segregated portfolios, are still pending. The investments were written off by the fund house and the matter is sub judice in the Supreme Court.

The background
The debt investments in Vodafone Idea were marked down to zero by Franklin Templeton Mutual Fund’s schemes in January 2020, after the Supreme Court had dismissed the telecom firm’s review petition on Additional Gross Revenues (AGR) liability of over Rs 44,000 crore.

Subsequently, the debt papers were downgraded to below investment grade and the fund’s schemes put these debt securities in a side pocket or a segregated portfolio on January 24, 2020.

SBI Mutual Fund last month had said it has completed the liquidation of assets in the six shut debt schemes of Franklin Templeton MF and distributed around Rs 27,500 crore to the latter’s unitholders.

Franklin Templeton in April 2020 announced shutting down of the six debt mutual fund schemes, citing redemption pressures and lack of liquidity in the bond market. PTI

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