For Owning Shares Worth Only Rs 32 Crore, LIC Wants To Bail Out IL&FS

The cash-strapped Infrastructure Leasing and Financial Services (IL&FS) group, which has missed debt repayments in the past few weeks seems to have found a saviour. On September 25, immediately after a confidential meeting with Union Financial Minister Arun Jaitley,  Life Insurance Corporation of India (LIC) chairman V K Sharma had indicated that it would save the group from its crisis.

“We will all try to see that it (IL&FS) does not collapse,” Sharma was quoted as saying.

Currently, the public sector  LIC owns 25.34% of the total equity shares of the group, the largest chunk of equity shares. However, its total investment in IL&FS is only Rs. 32 crore. On the other side, the group’s total debt stood at Rs.91,091.3 crore, according to its consolidated balance sheet for the financial year 2018. As per media reports, the current maturity (debt to be repaid in one year) in FY18 is around Rs 25,000 crore.

That is, for having an investment of just Rs 32 crore in  IL&FS, the LIC is now ready to further invest money of some hundred crores just to save a 31-year-old private entity which became a defaulter, obviously due to its own mistakes. In other words, LIC’s public money, belonging to its  policyholders, is being considered for use in order to bail-out the private sector IL&FS, and the Central government is pushing for this.

A close look at the annual audit report of the IL&FS throws light on its stakeholders and LIC’s investment into the entity.  

As per the audited annual accounts of IL&FS group, the share capital of the group of companies is around Rs 983 crore as on March 31, 2018. This comprises nearly 128 million equity shares of Rs 10 each, equalling Rs 128 crore. As per the notes of the IL&FS consolidated balance sheet, LIC has invested 25.34% of 128 million equity shares at Rs 10 per share, equaling Rs 32 crore approximately.

In addition to the equity shares, the IL&FS group has also issued Non-Convertible Redeemable Cumulative Preference Shares (NCRCPS) of Rs 7,500 each, which are both subscribed and paid up. These shares have a face value of Rs 7,500 plus redemption premium of Rs 5,000 to Rs 7,500. These share were issued from 2014 to 2015 and are redeemable from May 2021 to 2022. Alongside, five million NCRCPS of Rs 10 each at 2% per annum dividend have been issued in 2012, which are redeemable in 2012.

In total, Rs 849.7 crore worth of NCRCPS have been issued by IL&FS. As per para 4(f) of the notes in their annual report, one Japan’s ORIX Corporation, owns 81.53% of these NCRCPS shares, a substantial investment.

Considering the figures, with mere investment of Rs 32 crore, the LIC is not even a major stakeholder of the IL&FS, when compared to the ORIX. On the face of all this, the crucial reasons or in literal terms, the mistakes committed by the IL&FS which have led to this crisis, are yet to emerge.

However, another government institution is gearing up to legally contest the IL&FS. Reportedly,  on September 25, the Small Industries Development Bank of India (SIDBI) filed an insolvency application against IL&FS and its subsidiaries at the National Company Law Tribunal (NCLT) in Mumbai. Meanwhile, the distressed group had also filed an application with the NCLT seeking accommodations for itself and 40 of its subsidiaries under the Companies Act to reach a compromise with creditors outside the insolvency courts.

IL&FS has been a pioneer of public-private partnership models in India. At the end of March 2018,  IL&FS has a total of 24 direct subsidiaries, 135 indirect subsidiaries, six joint ventures and four associate companies.

The Reserve Bank of India (RBI) has called for a meeting of all stakeholders (ILFS and its creditors) on September 28, one day before the entity has slated its annual general meeting on September 29.