Franklin Templeton Mutual Fund on Friday said Essel Infraprojects Ltd (EIL) has defaulted on debt issued by EIL.
The fund house said four of its fixed income schemes — Franklin India Dynamic Accrual Fund, Franklin India Credit Risk, Franklin India Short Term Income Plan and Franklin India Low Duration Fund — have invested in zero per cent Essel Infra Series 1 and zero per cent Essel Infra Series 2, which matured on May 22, 2020.
“At maturity, the issuer was unable to meet the maturity obligation. These NCDs are currently valued at 15 per cent of value after taking an 85 per cent hair cut. The NCDs are backed by a pledge of listed shares of Zee Entertainment, Dish TV, unlisted shares of EIL, personal guarantee of Subhash Chandra and corporate guarantee. There is no impact on NAV of the schemes in comparison to that of May 21,” Templeton said in a note to investors.
There is no impact on net asset value (NAV) as the value of shares held as collateral is greater than the current valuation of the bond. Templeton has not yet sold the collateral. It has appointed a legal counsel to maximise recovery value in EIL bonds.
The fund house decided to close down six credit risk schemes in April due to heavy redemptions. Credit risk schemes and several other debt funds witnessed outflows during the month of April as the Franklin Templeton fiasco prompted worried investors to pull out funds from risky schemes. Credit risk schemes of various fund houses witnessed outflows of Rs 19,238 crore in April after Templeton abruptly decided to wind down six credit schemes.
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