LIC has Rs 4,137 crore worth of pension investments in ‘D’-rated instruments; marginally up from last year

    Life Insurance Corporation of India (LIC) has Rs 4,136.7 crore worth of investments of its pension fund in ‘D’-rated debt instruments.

    According to public disclosures made by LIC at the end of the September quarter, IL&FS and its financial services arm accounted for Rs 310.39 crore of the pension fund balance sheet.

    The life insurer had a balance sheet of Rs 17,176.53 crore in its pension business fund at the end of Q2.

    Companies that have seen a ratings downgrade of their debt papers where LIC has an exposure, include Reliance Communications, Jaiprakash Associates, Amtek Auto, Jindal Steel & Power, Hindustan Construction Company and Gammon India, among others.

    Last year, at the end of Q2, LIC had Rs 4,026.31 crore worth of ‘D’-rated debt instruments in its pension portfolio.

    Here, the names of the companies on the list were largely the same, except last year’s list did not feature IL&FS entities and included Bhushan Steel.

    LIC discloses the name of downgraded investments in its pension portfolio on an annual basis.

    LIC did not respond to an email by Moneycontrol.

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    Instruments that have a ‘D’ rating are already in default or are expected to be defaulted on in the near future. Due to this, they are considered risky investments.

    IL&FS debt crisis

    Both IL&FS and IL&FS Financial Services had their credit ratings downgraded in the quarter gone by. From a rating of ‘AAA’, they were downgraded to ‘D’ in September.

    IL&FS’ papers were downgraded by rating agencies due to concerns around the infrastructure lending major defaulting on a series of debt instruments.

    This was followed by fears in the market that the group will not be able to fulfill its debt obligations.

    The IL&FS group has a cumulative debt of Rs 91,000 crore. The first signs of trouble in the group emerged in June when it defaulted on inter-corporate deposits and commercial papers (borrowings) worth about Rs 450 crore.

    Over the next three months, rating agencies also downgraded the company’s long-term ratings.

    Among its group companies, financial services arm IL&FS Financial Services also defaulted on interest payment on commercial papers four times in September.

    In October, the National Company Law Tribunal (NCLT) approved the supersession of IL&FS’ board by government nominees, saying mismanagement at the crisis-ridden financier makes it a fit case for superseding of the board under Article 241 of the Companies Act.

    Investing in risky papers

    The insurance regulator had earlier said that insurers should be aware of the risks associated in investing in low-rated debt instruments, considering the funds invested come from policyholders’ accounts.

    Insurance Regulatory and Development Authority of India (IRDAI) Chairman Subhash Khuntia had also said that when an investment gets downgraded, an insurer should retrieve the maximum possible amount and invest it elsewhere.

    He was responding to a query on LIC’s exposure to defaulting entities like IL&FS.

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