Franklin Templeton reassures Indian investors that their money is safe — and the delay in repayments is due to cash crunch

• In April, Franklin Templeton India shut down six debt funds, locking in ₹30,800 crore of investor wealth after a surge in redemptions.
• Explaining the reason behind this, Franklin Templeton CEO Jennifer M Johnson said that this is a liquidity issue and not a solvency issue.
• Franklin Templeton India’s assets under management (AUM) declined by almost 43% – from $7 billion to $4 billion.

Franklin Templeton India, one of the oldest asset management companies (AMC) in the country, decided to wind down six debt funds amounting to ₹30,800 crore in investor wealth. Now, in an earnings call, Franklin Templeton President and CEO Jennifer M Johnson has explained what exactly went wrong with its India business.

“We're doing everything we can for those shareholders, to make sure they get all their money back. That's what the strategy is,” said Franklin’s Chief Financial Officer Matthew Nicholls.

‘This is not a solvency issue’

Franklin global chief Johnson also noted that this is not a solvency issue, and that the winding down was done to protect the capital of clients.

The surge in redemptions created a liquidity issue, and to meet it, Franklin Templeton India would have had to ‘sell those assets at a fire sale’, but regulations prevented it from doing so.


2019 regulation hit Franklin’s debt funds

“In October of 2019, unfortunately, SEBI came out with new guidelines saying that any investments in unlisted instruments can't be more than 10% of the fund, and you can't trade them. So that orphaned about 1/3 of our fund there,” Johnson said in response to a question by a Goldman Sachs analyst.

The AMC had announced the shutdown of the following six funds:

• 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
  
• Franklin India Income Opportunities Fund
  

Due to these six funds being shut down, ₹30,800 crore of investor wealth has been locked in.

Franklin Templeton India’s AUM declined from $7 billion to $4 billion

The Coronavirus crisis coupled with the economic slowdown has led to a decline of almost 43% in Franklin Templeton India’s assets under management (AUM) when it comes to debt funds.

“Now, in the meantime, we worked hard to manage laddering maturities, diversifying sectors, diversifying ownership and had been able to manage a decline from about $7 billion to just under $4 billion,” Johnson added.

Vodafone Idea AGR ruling ‘created a run on the funds’

Explaining the reason for the decline in its AUM, Johnson said that the adverse ruling against Vodafone Idea in the AGR case ‘created a bit of a run on the funds’.

“We looked at it and just decided the only way to really preserve the value for our investors was to halt any kind of subscriptions and redemptions and really go into wind-down mode,” Johnson explained the reasoning behind winding down the six debt funds.

SEBI launches probe in Franklin Templeton’s India unit

Market regulator SEBI launched a probe into Franklin Templeton’s India unit, according to a report by Livemint. The probe seeks to understand if the AMC misrepresented the risk involved in these funds.

“The queries from SEBI are on the portfolio of these six schemes, rationale for choosing these papers, extent of bank borrowing, and how liquid the underlying bonds are,” the report added, quoting an unnamed source.

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