Franklin Templeton debt funds see further dip in NAV as Future Group defaults

Four of the six debt schemes of Franklin Templeton Mutual fund which are under winding up saw further dip in their NAVs due to default in payment of dues by the Future Group. The net asset value of Franklin India Income Opportunities Fund fell by 4.85% on Friday. Franklin India Credit Risk Fund saw a dip of 2.28%, Franklin India Short Term Income Plan dipped 1.75% and Franklin India Dynamic Accrual dropped 1.34%.

The above mentioned schemes have invested in NCDs issued by Rivaaz Trade Ventures, Nufuture Digital (India) and Future Ideas. On July 29, Brickwork ratings downgraded the rating of these NCDs to BWR BB+. The rating downgrade was on account of the downgrade in credit profile of the credit enhancer Future Retail Limited, on which these companies have significant reliance for income.

While Rivaaz Trade Ventures met its payment obligation due on July 31, the other two were unable to make payment.

Franklin Templeton in a note said that due to default in payment, the securities of FICL and NDIL will be valued at zero basis on AMFI standard haircut matrix, and the interest accrued and due will be fully provided.

These valuations only reflect the realizable value and do not indicate any reduction or write-off of the amount repayable by these companies, the note said.

Future Group has had lower sales due to closure of most of its outlets during Covid19 lockdown leading to poor liquidity. This resulted in missed coupon payment of a US$ 500 million bond on July 22 and availing grace period of one month for payment.

There is news of an ongoing potential deal between Reliance Industries buying controlling stake in Future Retail, which Franklin Templeton AMC believes will benefit the three issuers held in scheme portfolio.