IL&FS Crisis: Thousands of Crores of PF Money at Risk, Says Report
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New Delhi: Provident and pension fund trusts, which have collectively invested “thousands of crores” in bonds of the crisis-ridden infrastructure financing major IL&FS group, have filed intervening petitions in the National Company Law Appellate Tribunal (NCLAT) over fears that they could lose their money as the bonds come under unsecured debt.
The exact amount at stake is not known since many of these are traded instruments. However, investment bankers estimate it to be in thousands of crores since the infrastructure company’s bonds-- which were ‘triple A’ rated-- were preferred by retirement funds that have a low-risk appetite but still have to get assured returns even when interest rates are low.
As per a report in the Times of India, exempted trust managing funds of employees of public sector companies such as MMTC, Indian Oil, CIDCO, HUDCO, IDBI, SBI and electricity boards of Gujarat and Himachal Pradesh are among those that have filed petitions. There are also PFs of private companies like Hindustan Unilever and Asian Paints.
In their applications, the funds have called into question the resolution process itself, including Section 53 of the Insolvency and Bankruptcy Code which spells out the order of priority of distribution of proceeds of the process.
“The number of PF’s filing petitions is likely to rise since they have till March 12 to make their application. So far, over 50 funds, managing retirement benefits of over 14 lakh employees, are understood to have exposure to IL&FS. When contacted IL&FS spokesperson Sharad Goel said that the company would not comment on the issue” the report stated.
What seems to be the immediate cause of concern for investors is that of IL&FS categorising its group companies into a three-tier classification of Green, Amber and Red.
IL&FS has said that out of the 302 entities in the group, 169 are Indian companies and out of these, only 22 have been identified to be in a position to meet all their obligations (green). Another 10 companies can repay their secured creditors (AMBER) and 38 companies are distressed and cannot meet their obligations (RED) while another 100 entities are still being assessed. “If payment is limited to secured creditors, only banks will receive their dues while the unsecured bondholders will be left high and dry” the TOI report said.
IL&FS has been a favourite among PFs because the company was seen to be backed by the public sector, as it was promoted by giants like State Bank Of India (SBI) and Life Insurance Corporation of India (LIC). Also, the company structured bonds to suit the requirements of PFs.
Some feel that with the resolution taking place close to the Lok Sabha elections, default to PFs, that hold the hard-earned money of workers, could take a political colour.
CITU Writes to Labour Minister
Meanwhile, Tapan Sen, Rajya Sabha MP and General Secretary of Centre of Indian Trade Unions (CITU), has written to Labour Minister Santosh Gangwar, drawing his attention to the media report. Sen said thousands of crores of rupees from the Employees’ Provident Funds (EPF) invested in tradable bonds in the IL&FS Group are at risk of being lost as the group companies are facing near-bankruptcy and are in the midst of resolution procedures in National Company Law Tribunal (NCLT) under Section 53 of the Insolvency Bankruptcy Code Act (IBC).
Citing the report Sen said over 50 EPF funds of various companies, both in PSUs and number of private sector giants involving the post-retirement savings and benefits under EPF of over 15 lakh employees have been put in such risk following their exposure to IL&FS,
“Kindly recall, the workers’ representatives in Central Board of Trustees (CBT) of EPFO have been consistently opposing the investment of EPF funds in any speculative tradable instruments, but the Government of India bulldozed the unanimous opposition of the workers representatives and channelised a part of EPF funds for investment in speculative instruments. Now, you will see the results as the life-times savings in EPF of the concerned workers and employees of the affected establishments, it being pushed to the possibility of imminent loss of even the invested amount itself, not to speak of interests” the letter stated.
The CITU said the Central government must also take the responsibility of protecting the EPF savings of the employees/establishments which have already been pushed to risk of loss owing to their exposure with IL&FS group along with interest.
Sen also urged Gangwar to share details of investment exposure of EPF funds with IL&FS bonds both for the funds under the Central Provident Fund Commission and also under the exempted establishments entity-wise “so that actual situation can be ascertained and dealt in a transparent manner in the interest of fairness, transparency and propriety. “
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