Franklin Templeton Mutual Fund (MF) – which had earlier marked down its debt exposure to Vodafone Idea (VIL) to zero – has decided to create segregated portfolios (or side-pockets) to hold these debt papers separately following the telecom player’s debentures getting downgraded to below-investment grade.
The fund house in a statement said, “The board of trustees of Franklin Templeton MF has approved the creation of segregated portfolios in 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 and Franklin India Income Opportunities Fund.”
The side-pocket is effective from January 24. Further, the statement read that the decision was taken keeping in mind the interests of existing investors.
On January 24, CRISIL downgraded the non-convertible debentures (NCDs) of VIL to BB, which is a below-investment grade rating.
On Friday, the rating agency revised its ratings on NCDs of VIL from BBB- to BB and maintained ‘rating watch with negative implications’.
The agency said that the revision reflected expectation of a significant deterioration in VIL’s financial risk profile on account of the potential payout against the adjusted gross revenue (AGR)-related liability, which was payable shortly.
However, it also pointed out that the actual liability could be lower than the Rs 44,150 crore provided for by the company in its books. The agency in its note said that VIL’s current liquidity of Rs 15,390 crore (as of September 30, 2019) will be insufficient if payout of license fee liability continues to remain part of the overall dues.
On January 16, Franklin Templeton MF, which had Rs 2,073 crore of exposure to Vodafone Idea (as of December 31, 2019) in six of its schemes, marked down the exposure to zero as a ‘prudent measure’ to protect the interests of existing unitholders. The markdown was taken on the same day when Supreme Court rejected VIL’s review plea pertaining to over Rs 40,000 crore in AGR-related dues to government.
This markdown led to four to seven per cent dip in the schemes’ net asset values (NAVs) that were exposed to the telecom company’s debt instruments.
Overall, the MF industry had debt exposure of Rs 3,389 crore, spread across 45 schemes, as of December 31, 2019.
Source: Maalaimalar
