Franklin Templeton faces default on Essel group paper

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The Essel group paper has a maturity value of ₹616 crore, although it is currently valued at only ₹92 crore by Franklin Templeton. (Photo: Bloomberg)


Franklin Templeton Mutual Fund in a word to distributors on Friday introduced a default on debt issued by Essel Infraprojects Ltd (EIL). At maturity, the issuer was not capable of meet the maturity obligation, the word mentioned.

“The worth of the collateral is bigger than the worth at which the debt is at present held,” an individual with data of the matter mentioned on situation of anonymity. Therefore, there was no affect on the NAV of the schemes in query, the individual added.

The paper, which was within the type of non-convertible debentures (NCDs), was backed by shares of Zee Leisure Enterprises, Dish TV India, unlisted shares of EIL and the non-public assure of Subhash Chandra, the Franklin word added.

It’s not clear if Franklin Templeton AMC has tried to promote any of this collateral or invoke the non-public assure of Chandra.

Shares of Zee Leisure have dropped from 360.45 to 164.90, a fall of round 54% prior to now one yr. Dish TV India shares have dropped from 30.45 to only 4.6 throughout the identical interval. Messages and calls from Mint remained answered by the fund home on the time of scripting this report.

The Essel group paper has a maturity worth of 616 crore, though it’s at present valued at solely 92 crore by Franklin Templeton. It constitutes 0.16-1.87% of 4 Franklin schemes—Dynamic Accrual, Credit score Threat, Quick Time period Revenue Plan and Low Length. “We’ve got appointed authorized counsel and are actively contemplating all essential actions to maximise restoration worth,” the word mentioned.

Different AMCs had been additionally uncovered to Essel group paper in 2019, together with HDFC, Kotak, ICICI Prudential and Aditya Birla Solar Life Mutual Fund. The collective trade publicity stood at round 7,000 crore in February 2019. A number of the fund homes reminiscent of ICICI Prudential AMC, Kotak AMC and HDFC AMC recovered their cash in September 2019 when Invesco Oppenheimer purchased an fairness stake within the firm for 4,224 crore and different fund homes recovered part of their cash. Nonetheless, additional defaults continued to hit the trade. Aditya Birla Solar Life Asset Administration Firm confronted one such credit score occasion in November 2019 on paper issued by Adilink Infra and Multi Buying and selling Ltd and the fund home facet pocketed the paper in query.

Aspect pocketing is the separation of items in lieu of dangerous debt. Current buyers can exit the remaining a part of the fund with out giving up on the possibility of restoration in dangerous debt.

It’s unclear whether or not the contemporary default in EIL has affected different AMCs as properly.

Franklin Templeton Mutual Fund had not too long ago appointed Kotak Mahindra Financial institution to supervise the winding up technique of the six schemes it closed on 23 April. A latest Sebi round additionally set in movement the method of letting buyers promote their items on exchanges. The worth of such written down paper might have an effect on the costs at which the items of the six schemes are offered.

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