Franklin Templeton has become embroiled in a spat with India’s markets regulator in the latest twist in a fiasco that has trapped $3bn of investors’ money.
The California-based asset management company on Friday publicly apologised to the Securities and Exchange Board of India (Sebi), weeks after it sparked alarm by freezing withdrawals from six of its debt mutual funds.
Sebi a day earlier had criticised Franklin Templeton for comments made by Jennifer Johnson, the company’s president, that appeared to partly blame Indian regulations for itsdecision to wind upthe credit-risk funds. The funds had invested in lower-grade corporate debt that offers higher-interest rates.
Sebi a day earlier had criticised Franklin Templeton for comments made by Jennifer Johnson, the company’s president, that appeared to partly blame Indian regulations for itsdecision to wind upthe credit-risk funds. The funds had invested in lower-grade corporate debt that offers higher-interest rates.
On a recent earnings call, Ms Johnson said that rules introduced by Sebi last year that limited dealing in unlisted debt effectively “orphaned one-third of our funds” in India by making it harder for them to trade in lower-rated bonds.
Those comments prompted a response from Sebi that strongly implied Franklin Templeton had disregarded regulations that required it to over time reduce the amount of unlisted debt in its portfolios.
“Some mutual fund schemes seem to have chosen to have high concentrationsof highrisk,unlisted, opaque,bespoke,structured debt securitieswithlowcreditratings,” the Sebi statement said.
Mutual funds like those run by Franklin Templeton have been an important source of funding for financially weak Indian companies, many of them unlisted, which prompted Sebi to introduce tighter regulations.
The regulator added that “FranklinTempleton should focus on returning the money of investors as soon as possible”. Analysts have said that process could take months or even years.
Franklin Templeton’s India president Sanjay Sapre on Friday said that Ms Johnson’s comments had been taken out of context: “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 apologise for the same.”
Since it froze the funds in late April, Franklin Templeton has been criticised by investors who argued that it took on too much risk in search of higher returns. Its decision to wind up the funds has led to outflows from other mutual funds in India.
The closures prompted the central bank to step in with anemergency liquidity infusionfor other funds, as well as concerns over the broader health of the financial system.
Franklin Templeton has said that liquidity in India’s debt markets dried up after the country entered a nationwide lockdown to combat coronavirus in March, making it difficult to meet a sharp uptick in redemptions. It said that gating the funds ahead of their eventual closure wasthe only wayto ensure that investors would eventually get their money back.
Even before the pandemic hit, India’s debt markets were under pressure due to a slowdown in the economy and the knock-on effects of a series of large defaults in the country.