Templeton taps govt channel via envoy, seeks fair hearing

Franklin Templeton (FT) has tapped diplomatic channels seeking a “just and fair” hearing by the Securities and Exchange Board of India (Sebi) in ongoing regulatory and legal proceedings involving liquidation of the asset manager’s six debt schemes in the country.“If we are hit with unfairly large penalties — whether by fine or disgorgement — that not only would discriminate against a major US-based global investment manager, it also would cause us to cut jobs and otherwise pull back our Indian operations,” Franklin Templeton’s global chief executive and president Jennifer M Johnson said in a note to the Indian ambassador in Washington that ET has seen.Johnson, along with Franklin Templeton’s general counsel Craig Tyle, international legal team head Paul Elmlinger, APAC chief Vivek Kudva and India AMC president Sanjay Sapre explained the details of the case to Taranjit Singh Sandhu, India’s ambassador to the US, in a virtual meeting on February 26. After the meeting, Franklin shared a note detailing their concerns with the diplomat.“We are one of the very few foreign-owned asset managers that has ‘not’ decided to cease its India operations in recent years,” said Franklin’s note to the Indian embassy in Washington after the virtual meeting. India’s foreign ministry spokesman said he had no information on the matter and suggested checking with the Department of Economic Affairs (DEA) in the finance ministry.“This appears to be an issue pertaining to D/o Economic Affairs in the M/o Finance,” he said. “I do not have any information to share in this for the moment. Perhaps you may wish to contact DEA on this.”Committed to India, says FTFranklin Templeton said it was committed to India.“The authorities were briefed on matters around recent events surrounding the winding up of the six funds as a matter of course and this does not, in any way, indicate any reconsideration of our commitment to India,” a Franklin Templeton spokesman told ET in an email. “Franklin Templeton has more than 25 years of history in India with over a quarter of our global workforce based here.”There was no response to queries sent to the finance ministry and Sebi.“Sebi seeks ‘disgorgement’ of two years fees that our AMC had received for managing the funds, including for a long period prior to the market disruption that caused the crisis. Sebi demands disgorgement of an estimated total of ₹440 crore ($61 million),” the Franklin note said. “In addition to disgorgement, Sebi seeks significant fines for various alleged violations and also threatens suspension of the AMC’s right to launch any new funds for a specified period.”According to the note, Sandhu is said to have assured Franklin of a fair hearing by Sebi as it’s an independent authority. He also told Johnson and the team that their sentiments would be conveyed to the concerned authorities in the Indian government.Subsequently, the DEA is said to have written to Sebi informing it about the communication from the Indian embassy mentioning Franklin Templeton’s request for a fair hearing by the regulator.“We only face regulatory action proportionate to any actual regulatory violations established by Sebi and that we are not used as a ‘scapegoat’ for the unpopular but correct (for our investors) decision to liquidate the funds,” the note said.At the centre of the matter is Franklin Templeton Mutual Fund’s decision to wind up six debt schemes in April last year that resulted in ₹26,000 crore of investor money getting locked up for 10 months. The move to shut down the products was in the wake of a crisis in the illiquid corporate bond market, in which Franklin was a sizeable player.Investors have been unable to access their money in these schemes as the winding up was challenged in court, preventing the AMC from distributing or monetising any assets in the schemes.Sebi had issued show cause notices to FT India AMC and FT Trustee Company initiating regulatory proceedings against the AMC in connection with its management of the funds leading up to the decision taken by the Trustee Company to wind up the six debt funds. The regulator had also issued show cause notices to certain employees and directors of the AMC. The hearing is going on before Sebi whole-time member G Mahalingam.“We believe that Sebi is reacting inappropriately in the face of unpopular but completely legal and appropriately made decision to liquidate the funds in the interest of their unit holders. In effect, Sebi is trying to do ‘regulation in hindsight’,” the Franklin note to the Indian embassy said.Investors in five of the six shuttered debt schemes of Franklin recently received a portion of their money. The AMC has so far disbursed ₹9,122 crore in the five schemes.Following this disbursement, the six schemes still have debt securities worth ₹17,000 crore. The Supreme Court, which is overseeing the winding up of the schemes, had directed SBI Mutual Fund to liquidate them and distribute the proceeds.Franklin is ranked 11th in the Indian mutual fund industry with assets under management of over ₹81,266 crore on December 2020.“Our commitment to the India business and our investors remains steadfast as we continue to manage over ₹60,000 crore ($8.17 billion) of AUM in our other schemes for close to 2 million investors and operate our global service entity that represents almost every functional area in Franklin Templeton,” the spokesperson told ET. “Our immediate priority and focus at this time remains on liquidating the portfolio of the schemes under winding up and returning monies at the earliest, while preserving value. We continue to support the court-appointed liquidator in that process.”India has seen the exit of some large international financial firms from the mutual fund industry in the past decade. These include Fidelity, JP Morgan, ING, Deutsche, Goldman Sachs and Daiwa. 81751004

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