Corporate bonds

Uncertainty over EPFO’s Rs 11,000 crore investment in corporate bonds

The pension fund body purchased securities worth Rs 1,873.84 crore issued by IDFC First Bank between July 2010 and May 2015. In Indiabulls Housing, EPFO ​​had a total exposure of Rs 1,600 crore in September of this year.

An investment of around Rs 11,000 crore made between 2010 and 2017 by the Employees Provident Fund Organization (EPFO) in corporate bonds is cause for concern for the body as issuers have either defaulted payment of principal and interest, or the securities have been downgraded. .

While IL&FS and Reliance Capital defaulted on principal and interest bond payments totaling Rs 868 crore as in September this year; securities issued by Yes Bank, IDFC First Bank and Indiabulls Housing were downgraded between May 2019 and February 2020.

EPFO held securities worth Rs 574.73 crore in IL&FS, but the company being resolved did not pay Rs 384.12 crore in principal and interest until September this year. EPFO is considering taking the legal route to recover money and protect the interests of its subscribers. Its Rs 2,500 crore exposure to Reliance Capital is a bigger concern for the EPFO. As in September this year, Reliance Capital defaulted on interest and principal payments of Rs 484 crore.

“EPFO has issued reminders to the Ministry of Corporate Affairs (MCA), RBI, Sebi and the Ministry of Finance for taking appropriate steps to initiate insolvency and bankruptcy proceedings (against Reliance Capital) and any other action necessary to protecting the interests of EPFO ​​and its subscribers,” EPFO ​​said.

In a statement to members of the Central Governing Board (CBT) ahead of their scheduled November 20 meeting, the EPFO ​​also said it had asked the Department of Labor and Employment (MoLE) to guide whether a criminal complaint against Reliance Capital may be initiated.

EPFO acquired bonds worth Rs 4,300 crore issued by Yes Bank between December 2015 and October 2017. The pension fund body purchased securities worth Rs 1,873.84 crore issued by IDFC First Bank between July 2010 and May 2015. In Indiabulls Housing, EPFO ​​had a total exposure of Rs 1,600 crore as in September this year.

Although there were no defaults from Yes Bank, IDFC First Bank and Indiabulls Housing Finance; the downgrading of the rating of these securities by various agencies is a source of concern for the EPFO ​​and its underwriters. There is, however, another default event in the case of DHFL. The EPFO ​​held a value of Rs 1,161.8 crore there, as of August 31; but NBFC defaulted on its commitments of Rs 600.3 crore on principal payment and Rs 160.39 crore on interest payment.

Meanwhile, DHFL went through a corporate insolvency resolution process and in accordance with the resolution plan, EPFO ​​received, on September 29, Rs 249.25 crore in cash and securities with a nominal value of Rs 299.45 crore. “The total amount invested (in DHFL) but not received as of September 30 is Rs 613.07 crore and the amount of interest due but not received is Rs 160.39 crore,” EPFO ​​said.

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