Franklin Templeton India issued an apology to Securities and Exchange Board of India (SEBI) ‘on any unintended slight caused to the regulator’. The market regulator was miffed over Franklin Templeton global president Jennifer M Johnson’s comment that regulatory guidelines were one of the reasons that led to shutting down of its six debt schemes in India.
On 23 April, Franklin Templeton India had wind up six of its debt schemes due to illiquidity and redemption pressures amid the covid-19 disruptions. However, Johnson, in Franklin Templeton’s second quarter earnings call on 1 May, blamed Sebi’s rule for the episode. The transcript of the call became public on 6 May.
She said Sebi’s regulation of October 2019 had restricted funds investment in unlisted instruments at less than 10 per cent. Funds were given almost a year to bring their investment in unlisted bonds to the prescribed levels. ‘You can’t have more than 10 per cent in a fund and you can’t trade them. So that orphaned about one-third of our funds there,’ said Johnson.
Sebi, in its statement, said some fund schemes have had high concentration risk, even as they were given ample time to bring down investments in unlisted bonds to 10 per cent. ‘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,’ it said.
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