Franklin Templeton Mutual Fund on Friday tendered an unconditional apology to the market regulator Sebi for its senior official's comment that sudden regulatory changes were to be blamed for its sudden decision to windup six debt mutual fund schemes.
As reported by The Economic Times, the fund house claimed that media outlets quoted Jenny Johnson, president & CEO, Franklin Templeton, out of context, before offering an apology to the market watchdog.
"We deeply regret any unintended slight this may have caused to the esteemed offices of Sebi whom we have always held in highest regard and unconditionally apologise for the same," the fund house said in a notice
Johnson was referring to Sebi mandate of capping mutual funds' exposure to unlisted non-convertible debentures (NCDs) at 10% of the schemes’ corpus.
In a conference call this week, Franklin Templeton’s President & CEO said the rule “orphaned” one-third of their funds as these unlisted NCDs could not be traded after the circular.
“In India, anything below AAA-rated is considered non-investment grade. And the high-yield market is still very immature there. So, we’ve had a large fund... it’s actually six funds that were invested with a lot of this kind of private debt. And in October of 2019, unfortunately, Sebi came out with new guidelines saying that any investments in unlisted instruments you can’t have more than 10% in a fund, and you can’t trade them,” Johnson told analysts.
“It really was about selling those assets at a fire sale and very little buyers because of this regulation not permitting trading,” Johnson had said in the conference call.
The fund house said Johnson made these remarks in a specific context. “In response to a question regarding the winding up of six schemes offered in India, Johnson provided general background concerning Franklin Templeton’s experience in the Indian market as it existed before covid-19. The reference to the regulations around unlisted securities was intended to be a part of these background statements to provide context to an audience unfamiliar with Indian markets,” the fund house said.
Sebi did not take kindly to the remarks by the global CEO of Franklin. “Despite the regulations being clear, some mutual fund schemes seem to have chosen to have high concentrations of high risk, unlisted, opaque, bespoke, structured debt securities with low credit ratings and seem to have chosen not to rebalance their portfolios even during the almost 12 months available to them so far. In the current scenario, Franklin Templeton should focus on returning the money of investors as soon as possible,” the market regulator said.