- EPFO will exercise an early exit option to redeem investments in 10-year bonds of DHFL that mature in 2024
- The EPFO action comes as it struggles to recover Rs 574 crore of its bond investments in crisis-ridden shadow lender IL&FS
The Employees’ Provident Fund Organisation (EPFO) will seek early redemption of about Rs 700 crore worth of bonds of troubled mortgage lender Dewan Housing Finance Corporation (DHFL) to safeguard workers’ savings.
The retirement fund manager will exercise an early exit option to redeem investments in 10-year bonds of DHFL that mature in 2024, said Prabhakar Banasure, a member of the finance investment committee of EPFO.
“Of the total Rs 1,300 crore bond investments (in DHFL), we are yet to recover Rs 700 crore. Though the company has promised to pay back the investments, it is tough to give a timeline right now,” said Banasure.
Since mid-June, the investment committee of the retirement fund manager has met four times to discuss ways to recover the investments. It redeemed Rs 201 crore in two tranches, following at least two rounds of deliberation with DHFL officials in late June, according to official documents reviewed by Mint and two people familiar with the development.
The EPFO action comes as it struggles to recover Rs 574 crore of its bond investments in crisis-ridden shadow lender Infrastructure Leasing and Financial Services (IL&FS).
DHFL is among the companies worst hit by the liquidity crisis triggered by the payment defaults by IL&FS in 2018. The crisis shook investor confidence in non-banks and dried up access to financing for them from banks as well as bond markets.
“Initially, EPFO thought of going to the debt recovery tribunal against DHFL and it was discussed in one of the meetings of the investment committee. But before that it called the officials of the firm who promised to pay a part of the amount,” said one of the two officials cited earlier, requesting anonymity.
DHFL did not respond to an email seeking comment. A company executive on condition of anonymity said that all promises made will be honoured.
On August 6, DHFL said a board-appointed panel had approved a debt resolution plan that seeks a moratorium on repayments but spares creditors from having to take haircuts on principal payments. On August 11, news agency PTI reported that DHFL sought Rs 15,000 crore immediate funding from banks for on-lending.
Banasure said the senior administration of the home financier has given EPFO a written promise to pay back the entire amount. He, however, added that the health of the company may get better post December.
“The finance investment and advisory committee (of EPFO)… decided that in case of DHFL, all out efforts be made to ensure... early redemption. However, if the same is not deposited (by end September), then necessary action as per laid down law and procedure should be initiated,” said an EPFO document, a copy of which was reviewed by Mint.
EPFO is the custodian of the retirement savings of the millions of organized sector employees and invests 85 percent of the annual accrual in debt products and 15 percent in stocks via exchange-traded funds. It pays interest to its subscribers based on its returns. For 2018-19, EPFO had raised the interest rate on provident fund deposits to 8.65 percent, a 10-basis point increase from the previous year.However, the Finance Ministry has not yet approved the decision and has sought clarifications on whether EPFO can actually pay at an 8.65 percent rate in 2018-19. A Labour Ministry official said it has explained to the Finance Ministry that the 8.65 percent payout is not a problem for 2018-19.Subscribe to Moneycontrol Pro and gain access to curated markets data, trading recommendations, equity analysis, investment ideas, insights from market gurus and much more. Get Moneycontrol PRO for 1 year at price of 3 months at 289. Use code FREEDOM.