The LIC loan is part of the Rs 3,000-crore fund raising proposal that the troubled company's board will be taking up to discuss in Saturday's meeting.
Cash-starved IL&FS may get a helping hand from Life Insurance Corporation of India (LIC) in the form of a loan in the range of Rs 700-800 crore. But it comes with riders, which includes IL&FS showing a clear roadmap on reducing debt in the next three months.
The LIC loan is part of the Rs 3,000-crore fund raising proposal that the troubled company's board will be taking up to discuss in Saturday's meeting. The board will also explore options to reduce the financial stress on IL&FS.
Sources also said that Insurance Regulatory and Development Authority of India (IRDAI) is keeping a close watch on the situation, but is yet to instruct LIC on its investments in IL&FS and group companies.
LIC is the largest shareholder in IL&FS with 25.34 percent stake as on March 31, 2018. According to insurance regulatory rules, an insurance company cannot have more than 15 percent stake in a single entity, but can seek IRDAI exemption for specific transactions.
In July 2018, LIC Managing Director Hemant Bhargava was appointed on the IL&FS board as its chairman. He will be part of the review meeting tomorrow.
Loan from the insurance company comes after rating agencies - ICRA and CARE - downgraded non-convertible debentures (NCDs) of IL&FS to BB from AA+ on Sep 10. ICRA said the downgrade reflects rising pressure on liquidity at the group level due to sizeable repayment obligations. ICRA also downgraded the short-term rating for a Rs 40 billion commercial paper programme of IL&FS Financial Services, a subsidiary of IL&FS, to 'A4' from 'A1+'.
Last week, IL&FS Financial had informed exchanges that the company would not be able to issue any commercial papers till Feb 28, as it had defaulted on payments on two papers, due to mature on Aug 28 and Aug 30. In a letter to its employees, IL&FS has claimed that if funds worth Rs 16,000 crore stuck with concession authorities were released on time, it would not have landed in this mess.
Sources told Moneycontrol that LIC ‘would be willing’ to offer funds if the group is able to present a clear vision to deal with the financial situation for the next three to four months. “If there is a clear strategy presented to get out of the debt situation, we will be able to offer them loans on a short-term basis,” said a senior official.
The company may look at selling non-core assets such some of its real estate properties to shed its debt.
LIC did not respond to a mail sent by Moneycontrol.
IRDAI Chairman Subhash C Khuntia had said earlier this week that insurers should take a prudent decision when it comes to downgrades of their past investments. This is because the funds are invested out of the policyholder’s accounts.
“When an investment becomes downgraded, an insurer should retrieve the maximum that is possible. When there is a downgrade, they should withdraw it and put it somewhere else,” he told reporters on the sidelines of an industry event.Apart from LIC, several pension funds (including LIC Pension Fund) also have an exposure to the NCDs of IL&FS. However, Hemant Contractor, chairman of Pension Fund Regulatory and Development Authority (PFRDA) said that there has not yet been any defaults on the holdings by pension fund managers. He added that they will review the situation after the IL&FS board tomorrow.