It is not just banks, mutual funds or insurance firms that have an exposure to the IL&FS Group.
According to data accessed by The Indian Express, several high net worth individuals (HNIs); private family trusts; employees provident fund trusts of public and private firms too have subscribed to the non-convertible debentures (NCDs) and preference shares of Infrastructure Leasing and Financial Service (IL&FS) Ltd between 2014-2018 and are now keenly awaiting a resolution of the crisis at IL&FS Group.
IL&FS Group has a debt of about Rs 94,000 crore and has defaulted on repayments to its bondholders.
While Premji has invested Rs 100 crore through redeemable cumulative preference shares in 2014, Akshay Kumar has subscribed to about 6,800 preference shares of IL&FS for Rs 10.2 crore in September 2015. Dempo and Vassudeva Dempo Family Pvt Trust have invested Rs 2.1 crore in 2015 and Rs 5 crore in 2014, respectively. In each of these cases, the preference shares have been bought at a premium rate of Rs 7,500 a piece, for a period of seven years, according to the term sheet of the private placement of shares by IL&FS.
Companies typically deal with intermediaries to sell their debt paper in private placements. These intermediaries come with a client roster that would include institutions and HNIs, or their wealth managers. By law, private placement is a sale that happens to less than 200 entities.
Email and phone calls to Premji, Kumar and Dempo did not elicit any response.
Apart from them, IL&FS Ltd has also raised money through secured NCDs. For instance, the Infosys Ltd Employees Provident Fund Trust has invested in NCDs to the tune of Rs 200 crore between 2017 and 2018. The NCDs are due for redemption in five years from the allotment of the debentures. SBI Employees’ Pension Fund has put in Rs 150 crore in the NCDs, while the bank’s Employees Provident Fund Trust has invested Rs 140 crore in 2015 for ten years. Similarly, the Union Provident Fund of HUL has subscribed to IL&FS NCDs to the tune Rs 10 crore. BSE Ltd too has subscribed to debentures worth Rs 5 crore in 2015.
While IL&FS Ltd has defaulted on its December 2018 repayment to several bondholders including the National Stock Exchange of India Ltd (Rs 25 crore), the Rs 100 crore investment made by Cairn India Ltd in 2016 that is due for redemption in September is likely to face a similar default.
“The company will be guided by the Proposed Resolution Framework, submitted to the Government, and the NCLAT/court’s direction in this regard to resolve payment issues with its creditors,” said Sharad Goel, chief communications officer, IL&FS Group.
A person familiar with the development at Infosys said the investment in IL&FS is a
small percentage of the overall corpus of its employees provident fund trust.
According to the RoC data, between 2014 and 2018, IL&FS Ltd alone has raised about Rs 6,448 crore from NCDs, preference shares and other commercial papers.
“Union Provident Fund of HUL regularly invests in various securities in line with its investment policies and governance framework. Investment in IL&FS was made in the normal course of investments by the fund, considering the credit rating of IL&FS at that relevant point in time. The Company is taking appropriate steps to protect its investments made in IL&FS securities. Since this issue is now sub judice with NCLT, we would not like to comment further,” said a spokesperson of HUL.
While NSE and BSE both declined to comment on the issue, email and phone calls to State Bank of India did not elicit any comment. Cairn India also did not respond to the queries sent by The Indian Express.
Interestingly, the role of credit rating agencies in the IL&FS crisis has come under the scanner of the Securities and Exchange Board of India (Sebi) as its probe has found the rating agencies lacking. The Sebi probe comes after the rating agencies failed to warn investors in time about the deteriorating credit profile of IL&FS. At least two agencies had given IL&FS the highest rating of AAA, even when its subsidiary, IL&FS Transport Networks, defaulted in June 2018.
Subsequently, the rating agencies downgraded its debt papers/credit facilities citing weak financials. Later, the Reserve Bank of India (RBI) initiated a special audit of the IL&FS Group. In October, the government superseded the company’s board to contain the fallout.