Vodafone Idea Ltd on Friday paid ₹2,850 crore in principal and interest to seven of its bondholders, including Franklin Templeton India, which has shuttered six of its debt schemes and side-pocketed its entire loan exposure to the telecom operator over doubts about the company’s ability to repay.
The payments come as a major relief to Franklin Templeton which is battling issues of investor confidence since its decision to wind up six debt schemes on 23 April because of exposure to low-quality debt. Among mutual funds, Franklin Templeton had the biggest exposure to Vodafone Idea, which continues to grapple with stretched finances. The repayment was part of the ₹3,500 crore non-convertible debentures sold by Vodafone Idea in 2015 and matured on 10 July.
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Apart from Franklin Templeton India, which received ₹1,252 crore, UTI Mutual Fund received ₹166 crore and Nippon India Mutual Fund received ₹121 crore. Mutual funds said these part payments will be credited to investors’ accounts in the coming week. A side pocket allows a mutual fund to segregate investments in stressed assets and prevent unit holders from withdrawing their money until the asset manager recovers the funds linked to the stressed assets.
“We have now received the full value of the principal due, along with interest for the period 12 June to 9 July 2020,” a spokesperson for Franklin Templeton said in a statement. “This amount will be distributed to unit holders of the segregated portfolio…. This is the full and final payment for this segregated portfolio and will be made by extinguishing all outstanding units held by each unit holder therein,” he added.
Nippon India said in a statement it has received full payment of dues from Vodafone. The payout will be processed by extinguishing proportionate units in the plans of the segregated portfolio of the respective schemes, it said.
On 12 June, Franklin received ₹102.71 crore in interest payments from Vodafone Idea. UTI Mutual Fund and Nippon India Mutual Fund received ₹13.5 crore and ₹9.3 crore, respectively.
Franklin Templeton had a total exposure of ₹2,400 crore to Vodafone as of 31 December; UTI AMC ₹551 crore, and Nippon ₹241 crore. Franklin’s remaining exposure is to longer maturity papers.
The repayment comes as a shot in the arm for debt MFs, particularly those that had taken higher credit risks. So far, nearly ₹4,000 crore has been side-pocketed by MFs since Sebi allowed asset managers to segregate toxic assets. MFs have chosen to create more than 30 side pockets for their bond exposures.
Neil Borate in Mumbai contributed to the story.
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