Pension, provident funds to get top priority in repayment from IL&FS: NCLAT

Three amber companies classified into green; L&T Finance, Birla Sun Life MF among beneficiaries

The National Company Law Appellate Tribunal (NCLAT) on Friday said pension and provident funds which had invested in Infrastructure Leasing & Financial Services (IL&FS) would have priority in payment from all categories of companies, whether classified as green, amber or red. While the companies classified under the green category by the new board of IL&FS have been allowed to service their debt to all secured and unsecured creditors, those under amber category had been allowed to service debts of only senior secured creditors.

During the last hearing on May 30, the NCLAT had said that if IL&FS companies under the amber category were not reclassified into the green category, the appellate tribunal will pass orders asking such companies to service 100 per cent debt obligations of the provident and pension funds. On Friday, the new management of IL&FS said that of the 13 companies under the amber category, three had been reclassified as green. According to sources, these include Jharkhand Road Projects & Implementation Company (JRPIL), Moradabad Bareilly Expressway and West Gujarat Expressway (WGEL).

For Birla Sun Life Mutual Fund (MF) — which was one the fund houses affected by IL&FS entities’ suspending debt repayment — the move is a major relief.

“JRPIL was one of our major exposures in IL&FS, at around Rs 890 crore. The exposure was spread across our medium-term plan, credit risk fund and dynamic bond fund. ‘Green’ classification will make this a standard asset as the debt servicing will resume. JRPIL was a good asset as the money was coming into the special purpose vehicle’s escrow account,” said A Balasubramanian, chief executive officer of Birla Sun Life MF.

Among other creditors, L&T Finance also stands to gain from re-classification of these three entities. According to sources, the non-banking financial company (NBFC) had over Rs 1,500-crore exposure to the entities classified as ‘green’. The NBFC’s total exposure to IL&FS is around Rs 1,800 crore, according to people in the know.

Based on the procedure followed by the three IL&FS entities, the remaining companies would also be placed in the green category over time, the counsel for the new management informed the NCLAT. The matter will be next heard on August 8. The new board at IL&FS had classified IL&FS group companies into three categories — green, amber, and red — based on their financial health and ability to service debt obligations to secured and unsecured creditors.

Companies with no cash and not in a position to pay any creditor were classified as red, while those with enough to pay secured creditors but not unsecured ones were put under the amber category.

The firms which have enough money to service all their debts, to the secured as well as unsecured creditors, were classified as green. IL&FS defaulted on debt instruments including loans, bonds and commercial papers of more than Rs 4100 crore as of October 1. The outstanding loan of the IL&FS group is about Rs 60,000 crore, while the debt is over Rs 91,000 crore.