Franklin Templeton investments on Friday tendered an unconditional apology to the Securities and Exchange Board of India (SEBI) after SEBI issued a release advising the company to focus on returning money to investors.
In a notice, Franklin Templeton said that remarks made by President and CEO Jenny Johnson in an earnings call with analysts had been taken out of context by the media.
According to Economic Times, Johnson had said that SEBI’s rule of capping the exposure of mutual funds to unlisted non-convertible debentures (NCDs) at 10% of the schemes’ corpus “orphaned” a third of their funds.. “...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 reportedly told analysts.
The markets regulator advised Franklin Templeton Mutual fund to focus on returning money to investors, in the context of winding up six of their debt schemes.
SEBI also mounted a defence of Franklin Templeton's media utterances blaming tightening of norms by SEBI as a villain.
In its notice, FT said that SEBI's guidelines on unlisted securities being the main reason for the decision to wind up the schemes was factually incorrect.
SEBI had noted that a section of the media reported quoting FT that tightening of norms for investment in unlisted debt by SEBI was one of the factors that added to pressure on their debt schemes, which resulted in winding up of their schemes.
“In this context, it may be noted that in light of credit events since September 2018, that led to challenges in the corporate bond market, a need was felt to review the regulatory framework for Mutual Funds and take necessary steps to safeguard the interest of investors and maintain the orderliness and robustness of their investments,” SEBI stated.
Without taking names, SEBI said 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," SEBI said in a statement.
“We deeply regret any unintended slight this may have caused to the esteemed offices of SEBI whom we have always held in the highest regard and unconditionally apologize for the same,” Franklin Templeton stated in its notice.
In a letter to investors, FT president Sanjay Sapre said that the schemes being wound up did not mean that the money of investors was lost, and that it would be returned at the earliest.
“As per our notice and all communications issued to date, and as stated by Ms. Johnson in her remarks, the primary reason which forced the decision to wind up these six schemes was the severe market dislocation caused by the COVID-19 pandemic and related lockdown which led to severe market illiquidity particularly for papers rated below AAA, combined with heightened redemptions during this period,” FT said in its notice.
It stated that the liquidity of schemes were severely impacted due to COVID-19, and the “inability of the schemes to meet daily redemptions was a direct result of the market situation created by the COVID- 19 pandemic as well as the extended lock-down.”