Mumbai, Aug 5: Templeton International Asset Management Company is launching a $100 million sub-continental fixed income debt fund with special emphasis on investments in India, Indonesia and Singapore.

Confirming the development, Templeton officials here said that the fund is expected to be launched some time between September and November this year.

The fund, targeted at the US and European investors, is in the process of being finalised and is going through an internal run-up currently. Sources added that they will soon apply to the Securities and Exchange Board of India (SEBI) for registration.

Sources said the fund will be registered in India as a 100 per cent foreign institutional investor debt fund. Given the recent currency turmoil in most of the south east Asian markets, including Indonesia, a large chunk of the initial investments from this fund may find their way into India. Earlier, the debt fund was planned for Thailand, Malaysia, Indonesia and India. "With the baht and ringitt in turmoil it is unlikely that any money will flow into these markets," sources said.

Foreign funds, specifically fixed income funds, have been fleeing south east Asian markets after the currency turmoil there last month. This, in relative terms, is likely to fuel interest in the Indian fixed income market.

However, it will be limited to a great extent by the $8.5 billion overall external commercial borrowing (ECB) limit and the provision of 20 per cent withholding tax on interest income.

This will be the second dedicated debt fund from the Templeton stable to be registered in India for investment. Templeton already has a $ 90 million 100 per cent debt fund registered with the SEBI.

However, the fund is yet to be cleared for investment in debt securities in India by the Securities and Exchange Commission (SEC), the US capital market regulator. Unlike the debt funds launched by foreign banks in India, Templeton's fund will need to get the SEC's nod as it is a US domiciled fund launched by an asset management company. Templeton is currently in the process of floating a special investment vehicle registered in the Maldives for the purpose of investment in India.

Given the high interest rate volatility in the Indian market at present, the fund is in no hurry to rush forth with investment into India. Of the nearly $2 billion foreign debt funds registered in India not many have started investing till now. "The maximum investment that has come from these funds into the Indian debt market till now would not be more than $100 million," says a fixed income fund manager with a leading FII. And most of these investments have been made in corporate debt, though some FIIs like UBS and Peregrine are reported to have become active of late in the dated government securities market.

The current high interest rate volatility experienced by the Indian market may limit the diversion of money flow from the east Asian markets, a fund manager said.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.