EPFO exposure to RCap at Rs 2,500 crore, LIC's Rs 3,900 crore: Report

Lenders will have to mark down their exposure, says Morgan Stanley report

The Employees’ Provident Fund Organisation (EPFO) has an exposure of Rs 2,500 crore to Reliance Capital (RCap) which is facing liquidity problems with its cash and bank balances falling to Rs 11 crore as on March 18, 2019.

According to global brokerage firm Morgan Stanley, besides the EPFO, Life Insurance Corporation of India has an exposure of Rs 4,700 crore to RCap and its subsidiary Reliance Home Finance (RHFL).

In the report showing exposures of various lenders, Morgan Stanley said that lenders with exposures to RCap entities will likely have to mark down their exposures.

"We have collated recent NCD (non-convertible debenture) prospectus data on lenders as of September 2018. Current exposures could be different, but the exhibits give an idea of potential names and approximate exposures," said Morgan Stanley in the report dated April 29.

The report said YES Bank has an exposure of Rs 1,360 crore to Reliance Commercial Finance (RCFL) and another Rs 990 crore to RHFL. The bank lent another Rs 990 crore to RCap, thus taking its total exposure to Rs 3,340 crore. The National Bank for Agriculture and Rural Development (Nabard) also had an exposure of Rs 2,800 crore to RCFL and another Rs 100 crore to RHFL. A Nabard official said its exposure is to RCap, but asked not to be quoted, while a YES Bank spokesperson declined to comment on specific clients.

The total outstanding debt of these three companies stood at Rs 52,490 crore at the end of September 2018, according to Morgan Stanley.

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On April 26, CARE Ratings downgraded loans of RCap subsidiaries RCFL and RHFL to D (implying in default or likely to default).

This was driven by instances of rescheduling of NCDs and delays in servicing of bank facilities. The rating agency also cited that given the moderation in the profile of RCap, the parent company, it may not be in a position to extend adequate support to its subsidiaries.

The rating of RCap's long-term debt programme currently stands at A, and is on credit watch for developing implications.

Meanwhile, Amit Bapna, chief financial officer of RCap, in an interaction, said, "Due to a timing mismatch for ongoing securitisation transaction, there were delays relating to repayments for RCFL and RHFL. Besides this, we do not see any pressure on future repayment obligations."

In its statement on April 18, CARE said RCap did not have any liquid investments or unutilised committed lines which further constrain its liquidity position.

"Thus, RCL's liquidity is critically dependent on monetisation of its sale of group assets/investments within the given timelines, given that there are scheduled repayments of NCDs and CPs (commercial papers) worth Rs 593 crore, Rs 1,035 crore and Rs 718 crore in April, May and June 2019, respectively. RCL's resource profile mainly comprises NCDs whose repayments are in the range of Rs 2,000 crore to Rs 3,000 crore per year."

Going forward, in line with the revised schedule, the company has divestment plans aggregating to about Rs 14,000 crore including Rs 6,000-7,000 crore from Reliance Nippon Life Asset Management (RNAM) and Rs 3,000 crore from listing of its general insurance company.
 

The proceeds of RNAM divestment are expected to be received by first week of June 2019.

With inputs from Abhijit Lele