Reports regarding findings of forensic audit misleading: Franklin Templeton

Franklin Templeton Mutual Fund, in its letter to investors, has stated that reports regarding the findings of the forensic audit are misleading and investments decisions are taken with an aim to achieve the best possible outcome for the investors.

In a letter to investors, Sanjay Sapre, president, Franklin Templeton Asset Management (India), said, “We believe that it is improper to make any publication regarding the forensic audit/inspection report as the matter is under the consideration of the Hon’ble Karnataka High Court.”

Over the last few days, few articles have carried reports on certain observations made in the forensic audit conducted by the Securities and Exchange Board of India (Sebi).

Claims have been made that some officials redeemed investments before winding up, suggesting wrong doing or insider trading, and that Franklin Templeton did not exercise “put” options in papers despite ratings downgrade, suggesting there were some reasons beyond the exercise of normal business judgement for such an action.

“It is also important to note that while many articles quote the forensic audit report findings, the auditors themselves have acknowledged in their original submission to Sebi that the report is subject to modification basis explanations and responses to be provided by Franklin Templeton,” added Sapre.

Regarding the decision to exercise, or not to exercise a “put” option rests with the investment management team, says the fund house.

“The team takes various factors and options into account in order to maximise recovery of investment proceeds when making such an investment related decision and exercising a “put” is not the only available option. Some reports specifically call out investments made in certain issuers where we did not exercise a “put” option. However, these reports ignore the fact that Franklin Templeton has already initiated legal recovery proceedings in the case of some of these issuers,” said Sapre in the letter.

On April 23, six debt schemes collectively worth Rs 25,800 crore were wound down by Franklin Templeton MF due to the severe market dislocation and illiquidity caused by the Covid-19 pandemic. The fund house also said that from April 24 till September 30, 2020, the total cash received from maturities, pre-payments and coupons across the six schemes stands at Rs 8,262 crore.

Part of this amount has been utilised to repay borrowings and post repayment, as of September 30, 2020, the fund house has Rs 5,084 crore available for distribution to unitholders in four cash positive schemes (Franklin India Ultra Short Bond Fund, Franklin India Dynamic Accrual Fund, Franklin India Low Duration Fund, Franklin India Credit Risk Fund), subject to fund running expenses.