Franklin Templeton debt MF e-voting: What are your options, what you should do

Franklin MF unitholders will have a 3-day window to participate in the e-voting process for authorising the winding up and also appointing the agencies to do the winding up

Kumar Shankar Roy May 29, 2020

stock markets elections19For the investors in six debt schemes that Franklin Templeton MF wants to wind up, the moment of truth is just days away.

On April 24, the fund-house shocked everybody as it announced its intention of shuttering the six debt funds, and blocked any further investment or redemption in those schemes that manage nearly Rs 26,000 crore. But, the fund-house does not have the final say in investors’ money when it decides to wind up the schemes.

As per regulation 41 of SEBI (Mutual Fund) Regulation 1996, approval of the unitholders (MF investors) is required to take steps for winding up of the scheme. So, investors are being asked to vote on this. Read on to know what you should do.

Q: What is the voting for?

On April 24, Franklin Templeton Trustee Services Private Limited (Trustee), as the trustee of Franklin Templeton Mutual Fund, decided to wind up six Schemes of the mutual fund:

• Franklin India Low Duration Fund (No. of Segregated Portfolios – 2)
• Franklin India Ultra Short Bond Fund (No. of Segregated Portfolios – 1)
• Franklin India Short Term Income Plan (No. of Segregated Portfolios – 3)
• Franklin India Credit Risk Fund (No. of Segregated Portfolios – 3)
• Franklin India Dynamic Accrual Fund (No. of Segregated Portfolios – 3)
• Franklin India Income Opportunities Fund (No. of Segregated Portfolios – 2)

Two of the schemes (Franklin India Dynamic Accrual Fund and Franklin India Ultra Short Bond Fund) have brought their bank borrowing levels to “nil”.

The voting is to get the approval of unitholders by a simple majority of votes in terms of how to go ahead with the winding-up process for each scheme.

If an investor has invested in more than one scheme, separate votes are required to be cast for each scheme. Once a unitholder has cast his/her vote, the same cannot be changed. So, you have to vote carefully. Every investor is entitled to only one vote irrespective of the number of holdings.

Q: When will voting happen?

A: The electronic voting (e-voting) will start from 9 am IST on June 9 to 6 pm IST on June 11. The results will be based on the actual number of votes recorded. There will be no extension of the voting window. Results can be expected on June 12

The e-voting facility offered by M/s. KFin Technologies Pvt. Ltd. will be made available for this purpose. The user ID and password for accessing the e-voting facility will be communicated by KFin Technologies Pvt. Ltd. directly to the unitholders at their registered email addresses. Unitholders, who have not registered their email addresses so far, may register their email addresses at any time until June 8, 2020 by visiting https://www.franklintempletonindia.com/investor/credit-fund-voting-rights

Q: What are the voting options?

A: The voting is a two-step process.

In the first step, you will decide for the winding up by choosing the Trustee or Deloitte, or none of them.

Option – YES – This means you will be authorizing the Trustee (Franklin Templeton Trustee Services) or DELOITTE TOUCHE TOHMATSU INDIA LLP (Deloitte), to take further steps for winding up of the respective scheme.

Option – NO – This means you are not in favour of authorizing the Trustee or DELOITTE, to take further steps for winding up of the respective scheme. Think of ‘NO’ as None Of The Above (NOTA) in the political voting system.

Remember that if your first step vote is NO, then there is no second step voting for you.

If a unitholder approves authorization by voting ‘YES’, then he/she will be next requested to make their selection between Option 1 and Option 2.

Option 1 – Authorize the Trustee to monetize the assets with the assistance of the AMC and Kotak as an independent advisor.

Option 2 – Authorize Deloitte to monetize the assets with the assistance of the AMC and Kotak as an independent advisor.

Q: What happens if investors vote ‘NO’ to winding up authorisation?

A: If a majority of votes is ‘no’, then the trustee will be required to propose other options to unitholders. The ‘no’ vote means you are not comfortable with either the trustee or Deloitte taking further steps for the winding up. This could result in seeking unitholders authorisation by way of a subsequent voting exercise. The fund-house says that this could result in a delay in monetising the scheme assets and distributions to the unitholders.

We at RupeeIQ think that there is little for investors to gain by voting ‘NO’. The investment manager and the trustee want to wind up the schemes. If you don’t choose the trustee or Deloitte, after a few days they will again come to you with another entity.

Q: Whom should a Franklin MF investor make in charge of scheme liquidation: Franklin trustee or Deloitte?

A: The major difference between the two options (Option 1 and Option 2) is the role of the trustee and the role of Deloitte.

If you choose ‘Option 1’ meaning the Trustee monetises the scheme assets with the assistance of the AMC and Kotak as an independent advisor, you are putting faith in the Trustee (Franklin Templeton Trustee Services). So, the Trustee is authorised to carry out the liquidation process.

If you choose ‘Option 2), the Trustee’s role will be restricted to the distribution of proceeds to unitholders after payment of liabilities and expenses. In this, it will be Deloitte who will be responsible for the disposal or realisation of scheme assets. Simply put, it will be Deloitte who will be authorised to carry out the liquidation process. Of course, Deloitte will monetise the assets with the assistance of the AMC and Kotak as an independent advisor.

RupeeIQ reached out to experts to understand their view on the options.

Vidya Bala, Co-Founder, PrimeInvestor.in says: “I think the 2 options given – is more to make up for any crisis of confidence that FT may be facing with investors. The Deloitte option essentially provides some confidence that it is entirely independent. I do not think it affects investors one way or the other unless they choose the third option, which is to vote a ‘no’ to the entire proposal. At this juncture, getting the money back as soon as possible should be the focus.”

Joydeep Sen, Founder, Wiseinvestor.in says: “The voting can be treated as a formality. In any case, unitholders will not be able to stop the winding-up status. Coming to Franklin Trustee or Deloitte, there may be a perception of more neutrality when it comes to Deloitte, but the difference between the two is really small. I would like to add here that investors should not try to hasten the process of liquidation because distressed sellers are hardly able to get fair value for their assets.”

Q: Is Deloitte a good option for the liquidation of financial assets? What is its track record?

A: Deloitte in India has handled assignments involving stressed debt of over USD 60 billion (INR 450,000 crore) over the last three years, with deal closures of USD 20 billion (INR 150,000 crore over 30+ deals) in the same period. Deloitte’s financial advisory team in India has more than 20 dedicated debt advisory professionals. Deloitte’s expenses will be borne by the AMC.

We think that an FT investor should prefer the Trustee i.e. Franklin Templeton Trustee Services, over Deloitte. Though we cannot predict how Deloitte will carry out the liquidation process with the assistance of the AMC (Kotak will be an agent of the AMC providing independent advice and assistance, wherever required), Deloitte has no experience in running a mutual fund or its schemes. Deloitte has strong experience in handling liquidation and winding-up in large and complex cases such as Aditya Birla Payments Bank (first voluntary liquidation of a payments bank outside IBC), Lanco Infratech (company having 100+ subsidiaries), Bharti Defence and Infrastructure Limited (earlier known as Bharti Shipyard) etc.

After investor and public outrage, the pressure is on Franklin to redeem its image and maintain the business in India. We at RupeeIQ believe the Franklin debt MF fiasco is due to Franklin AMC. There are two main stakeholders: fund managers and investors. But, there is only one decision-driver. Investors cannot be expected to run a fund. So, it is the fund managers who must take responsibility for running it. If investors somehow choose Deloitte as in charge of a scheme’s liquidation, it can give an exit route to Franklin if and when Deloitte is unable to return the full money. Thus, any sub-optimal performance by Deloitte may allow Franklin to wash their hands off.

Q: Is the role of Kotak the same in the 2 options?

A: Yes, in both options, Kotak Mahindra Bank will be the independent advisor to the AMC. Kotak, with its deep financial market experience, will act as an agent and provide its independent advice and assistance. The fees payable to Kotak will be borne by the AMC.


Kumar Shankar Roy

Kumar Shankar Roy is contributing editor with RupeeIQ. Kumar is a financial journalist, with a functional experience of 15 years. He tracks mutual funds, insurance, pension, PMS, fixed income/debt and alternative investments markets closely. He has worked for The Times of India, The Hindu Business Line, Deccan Chronicle Group, DNA, and Value Research, among others, across different cities in India. He is deeply interested in marrying data insights with actionable opinion. He can be contacted at kumarsroy@rupeeiq.com.

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