Franklin MF voting: Here are 7 things unitholders must know

Here is a ready reckoner of what investors in the 6 debt funds should know as voting takes place from Dec 26 to 28 this year

Kumar Shankar Roy   /   December 7, 2020
Franklin-Templeton

As expected, the Trustee of Franklin Templeton Mutual Fund in India has approached unitholders to seek consent for the orderly winding up of the six fixed income schemes. This is as per the interim order issued by the Hon’ble Supreme Court on December 3, 2020.

When

The Trustee has partnered with ’K Fintech‘ for the electronic voting process and the unitholders meeting to seek unitholders’ consent. 

Voting will take place from December 26–28, 2020 and the meeting of unitholders of relevant Schemes on December 29, 2020. 

Why

The objective of the voting exercise is to seek, by ‘simple majority’, consent of the Unitholders for the decision made by the Trustee to wind up the six fixed income schemes in an orderly fashion. 

Consent will be sought from unitholders for each scheme separately.

What to do

The Trustee believes that it will be beneficial for Unitholders to vote ‘YES’ to the proposed resolution. 

The Trustee is of the view that an orderly liquidation would maximize the value of the portfolio assets for distribution of cash to Unitholders on a pro-rata basis. 

“There is a greater likelihood of realizing fair value from the investments within a reasonable period of time by the person authorized under Regulation 41 in an orderly winding up,” the fund-house says.

What happens if you vote ‘No’

If the decision to wind up the debt schemes in an orderly manner is not implemented, it could precipitate a rush of redemptions.

This rush would force a distress sale of the portfolio securities, likely resulting in a reduction in the net asset value (NAV) of the Schemes and  substantial losses for Unitholders.

What happens if majority votes for ‘YES’ 

If a simple majority of unitholders vote “Yes” in favour of the orderly winding up. This will mean opting for an orderly winding up of the schemes with a potential to realize fair value from the assets. 

This will allow the Trustee to proceed with the next step which is to seek further approval from unitholders for appointment of a person under regulation 41(1) to carry out the winding up.

Will it take long to get money back

An orderly winding up does not mean a lengthy wait for return of monies. Once Franklin receives a majority ‘Yes’ vote in favour of the orderly winding up of the schemes, the second vote to seek approval of the unitholders will come.

The schemes will then be able to distribute the cash already available in the schemes. Individually, Franklin India Low Duration Fund, Franklin India Ultra Short Bond Fund, Franklin India Dynamic Accrual Fund and Franklin India Credit Risk Fund have 48%, 46%, 33% and 14% of their respective AUM in cash right now.  Franklin India Short Term Income Plan and Franklin India Income Opportunities Fund can’t return cash immediately as they are still under debt.

Franklin MF will also make further payments to unitholders at regular intervals as the schemes receive cash-flows from monetization of assets.

Payment and monetisation of securities

Of the Rs 11,576 crore received by the 6 funds since April 24, 2020, nearly half of this amount has been received from securities rated ‘A’, followed by securities rated ’AA’. 

Many of these securities were unlisted, and in many instances, Franklin Templeton Schemes were majority investors. 

Fund-house officials say many (debt) issuers are approaching them with offers of prepayment, and with markets slowly returning to normalcy, secondary market interest for many of the securities held in the scheme portfolios is also increasing. 

It is being hoped that the process of monetizing scheme assets can be sped up once the fund-house has unitholders’ consent for an orderly winding up. 

Monetizing a large amount of portfolio assets over a period of time in an orderly manner will result in better outcomes for unitholders as compared to being forced to sell the same securities as a ‘distress sale’ in a short period of time.

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