Companies with investments in 6 Franklin funds face downgrades

Mumbai: Companies with investments in the six shuttered credit funds run by Franklin Templeton now stare at a possible downgrade of their credit ratings as their liquidity profile could undergo a change if they are unable to redeem their investments, said people aware of the matter.Rating firms have begun to demand from clients their exposure to the fund to figure out the magnitude of the hit that these companies could face. A weakened liquidity profile will lead to a ratings downgrade. “We are reaching out to corporates and their treasury teams to find out up to what extent the Franklin episode has impacted their liquidity position. We will take a call on their ratings once we gather information on their exposure,” a person in the know said. “We are also hoping that Sebi (the Securities & Exchange Board of India) mandates companies to disclose their exposure to these funds. That will help us in assessing the damage far easier.”A spokesperson for Brickwork Ratings said that while its rating team was working on these aspects, it was too early to comment. Crisil declined to comment while Icra and India Ratings did not respond to ET’s emailed query. CARE Ratings said that it had factored in liquidity crunch in its ratings rationale. It is still not clear which are the companies have invested in those funds.“Firms where Franklin Templeton has exposure which are rated by CARE include NBFCs/HFCs as well some corporates,” said TN Arun Kumar, chief rating officer, CARE Ratings. “Most non-banking financial companies and housing finance companies are finding it difficult to raise funds from the debt capital markets. There is also lack of liquidity for primary and secondary transactions in this market. This limited liquidity has been factored in for our ratings over the last 12-18 months.”Franklin Templeton, the ninth-largest mutual fund in the country, said it would wind up six high-yield credit funds effective April 23. With ₹30,855 crore of assets under management (AUM), of which ₹2,753 crore was borrowed, the six schemes account for over 25% of the fund house’s total AUM, according to a research by B&K Securities. These funds whose AUM stood upwards of ₹60,000 crore in January faced massive redemption pressures over the last two months, forcing the fund house to shutter them.

from Economic Times https://ift.tt/3cQ5rLR