WITH Rs 30,800 crore investor money stuck in six credit funds of Franklin Templeton, it has now emerged that fund managers of the schemes were hardly conservative in their approach, and invested heavily — over Rs 15,000 crore — in several low-rates debt schemes and less known companies.
A report prepared by B&K Securities, a financial services group, revealed that the Franklin Templeton schemes subscribed to 100 per cent of the issue size in at least 26 cases. This means that in at least these 26 cases which collectively raised Rs 7,697 crore, Franklin Templeton was the only subscriber, raising questions about the investment practices of the fund house.
Some of the companies whose papers were fully and solely subscribed by Franklin Templeton schemes include Rishanth Wholesale Trading (Rs 604 crore), Rivaaz Trade Ventures (Rs 644 crore), Five Star Ltd (Rs 693 crore), Piramal Capital & Housing Finance (Rs 1,001 crore), Greenco Clean Energy (Rs 301 crore), Aptus Value Housing FInance (Rs 387 crore), Vastu Housing Finance (Rs 292 crore), Hero Solar Energy (Rs 437 crore), Hero Wind Energy (Rs 341 crore), Renew Solar Power (Rs 204 crore) and Essel Infraprojects (Rs 92 crore), among others.
Besides these, the Franklin Templeton schemes also subscribed to more than 70 per cent of the issue size in papers of nine other companies, and invested Rs 7,661 crore in these.
Of the total of Rs 30,800 crore invested by the six schemes, almost 50 per cent or Rs 15,358 were invested in 35 companies where it had subscribed to over 70 per cent of the issue size. “This is a shocking investment pattern. They put all eggs in one basket and destroyed investor wealth. Sebi should have taken action much earlier,” said veteran BSE dealer Pawan Dharnidharka.
A questionnaire sent to Franklin Templeton did not elicit any response.
According to industry insiders, while schemes are technically allowed to fully subscribe to papers issued by a particular company, investors need to watch out for the risks a fund manager is taking and the kind of portfolio he is building. “If 25-30 per cent of the portfolio is of companies where the fund house has fully subscribed the issue, it only builds risk into the portfolio,” said a top official with a fund house who did not wish to be named.
The report also raised concern over high exposure to non-AAA rated papers by Franklin Templeton in funds other than the six in question. “Total size of credit funds as a category defined by Sebi is Rs 55,436 crore. However, Franklin has been leading in managed credit category and has high exposure in non-AAA in other categories of fund as well and that is the reason of them winding of six funds due to illiquidity in the portfolio,” said the report.
The maturity profile of its investments indicates that subscribers of its funds may have to wait for five years or more to get a part of their original investment. The B&K report noted that as much as Rs 8,300 crore worth papers would mature between three years and five years, and another Rs 5,942 crore worth papers would mature between two years and three years. “It’s doubtful whether investors will get even half of their investment after five years. The fund house has washed its hands off now by closing down six schemes,” Dharnidharka said.
Deepak Jasani, Head of Research, HDFC Securities, said, “Despite the categorisation by Sebi, a lot of debt schemes take on risks that are not reflected in their scheme riskometer or their category names. Fund managers with a view to generate higher return tend to take higher risks in the portion of other investments permitted in even safe low risk categories.”
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