Franklin Templeton Mutual Fund has marked down their investment in Vodafone Idea Limited (VIL) to zero. The fund house has also capped fresh inflows in the affected schemes to Rs 2 lakh per day.
Six schemes of the fund house - Franklin India Ultra Short Bond Fund, Franklin India Short Term Income Plan, Franklin India Low Duration Fund, Franklin India Credit Risk Fund, Franklin India Dynamic Accrual Fund and Franklin India Income Opportunities Fund have exposures of 4-6.5% in VIL debt papers. Franklin Templeton MF has an exposure of Rs.1748 crore in debt instruments of VIL as on December 31, 2019.
|
Scheme Name |
Market Value as % of AUM (15-Jan-2020) |
|
Franklin India Low Duration Fund |
6.50% |
|
Franklin India Dynamic Accrual Fund |
4.10% |
|
Franklin India Credit Risk Fund |
4.70% |
|
Franklin India Short Term Income Plan |
4.40% |
|
Franklin India Ultra Short Bond Fund |
4.20% |
|
Franklin India Income Opportunities Fund |
4.90% |
The fund house’s decision comes amid growing uncertainty over VIL’s ability to pay Adjusted Gross Revenue (AGR) dues. To seek relief from these dues, VIL had filed a review petition before the Supreme Court but the apex court dismissed it on January 16. The apex court’s decision is said to have triggered a liability of around Rs.50,000 crore on Vodafone Idea.
In a notification, Franklin Templeton MF said, “The large quantum of AGR dues and the immediate payment timeline is resulting in significant uncertainty with respect to our exposure to VIL. As per news reports, VIL had acknowledged its inability to retain financial solvency in the absence of relief measures from the government.”
Industry experts said that the move is pre-emptive measure to check redemption pressure. Rahul Jain, Senior VP – Research, International Money Matters said, “For investors, it is not a good idea to redeem their investment at this point. If they redeem their investment, they will not get anything if there is a recovery from VIL’s exposure.”
A fund manager requesting anonymity said that since debt securities of VIL are currently under investment grade, the fund house cannot do side pocketing. Hence, the fund house chose to write off the exposure and put a cap on fresh investments.
Apart from Franklin Templeton MF, Aditya Birla Sun Life MF, UTI MF and Nippon India MF also have exposure to VIL papers. These fund houses have not taken a mark down on their holdings. Overall, the MF industry has exposure of over Rs.3000 crore in VIL’s debt papers.
