Franklin Templeton apologises to SEBI

Franklin Templeton Mutual Fund (Franklin Templeton MF) has reportedly issued an unconditional apology to SEBI in response to a senior official’s comment that precipitous regulatory changes were responsible for Franklin Templeton MF’s sudden wind up of six debt mutual fund schemes.

According to an Economic Times India report, Franklin Templeton MF has stated that “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 apology was in response to comments made by Jenny Johnson, President & CEO, Franklin Templeton, which were taken out of context, according the firm.

“It is clarified that some media outlets in India have quoted Johnson out of context, which diluted the essence of her responses. The headlines and articles erroneously suggested that Johnson stated that SEBI’s guidelines on unlisted securities was the main reason for the decision to wind up the schemes. This is neither factually correct, nor substantiated by the comments made during the conference call.”

Apparently, Johnson was in fact referring to a SEBI mandate which saw the capping of mutual funds' exposure to unlisted non-convertible debentures (NCDs) at 10% of the schemes’ corpus.

Johnson reportedly stated that the issuing of the mandate “orphaned” one-third of Franklin Templeton MF’s 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,” said Johnson.

“It really was about selling those assets at a fire sale and very little buyers because of this regulation not permitting trading,” she said.

In response to Johnson’s comments, SEBI stated that: “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.”