Franklin Templeton Mutual Fund has decided to segregate the bonds of Vodafone Idea held by its debt schemes, effective January 24, after ratings firms cut the telecom company’s securities below the investment grade.
On January 16, Franklin Templeton had marked down these securities to zero. That move came on a day when Supreme Court rejected the company’s plea to review payment of licence fee based on a wider definition of adjusted gross revenue.
As reported by The Economic Times, after the markdown, the net asset value of the schemes that held units of Vodafone Idea dropped 4-6%. The fund house had termed it a “prudent measure” to protect the interests of existing unitholders.
Investors in the affected schemes as on January 24 will receive separate units in the segregated portfolios.
Analysts see this decision to segregate the debt from the total portfolio as positive for existing investors, since they will directly benefit from any improvement in the status of Vodafone Idea. Also, new investors or speculators who enter the fund schemes will not get any advantage of such a recovery.
As per regulatory guidelines, fund houses can segregate portfolios, or create a side pocket, if the rating of a company falls below investment grade. On January 24, Crisil downgraded the non-convertible debentures of Vodafone Idea to BB, which is a below investment grade.
“The Board of Trustees of Franklin Templeton Mutual Fund 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,” a statement from the fund house said.