LIC’s Rs 11,000-crore exposure to DHFL, Reliance Cap, Sintex defaults in H1 FY20

MUMBAI: Life Insurance Corp, India’s biggest buyer of debt, has seen Rs 11,000 crore of bonds slide into defaults in the first half of FY20, with rating companies downgrading to junk the papers of DHFL, Reliance CapitalNSE -3.41 %, Reliance Home Finance, and Sintex Industries NSE 5.88 %.

LIC made provisions for its investments of Rs 6,500 crore in DHFL across life and pension funds, and these papers were downgraded to default in June. Its exposure of Rs 4,000 crore to Reliance Capital turned NPA for lenders in September 2019.

LIC had in the past taken exposure to many companies facing insolvency proceedings. These included Alok IndustriesNSE 5.00 %, ABG Shipyard, Amtek Auto, Mandhana Industries, Jaypee Infratech NSE 3.85 %, Jyoti Structures, Rainbow Papers, and Orchid Pharma.

The total debt book of LIC was Rs 4 lakh crore: With assets under management of Rs 30 lakh crore, LIC is the largest domestic institutional investor.

Overall, Rs 22,553 crore worth of assets were downgraded during the September quarter, of which Rs 4,300 crore was downgraded to sub investment grade or junk by rating companies. These included investments in Reliance Capital from pension and life funds.

LIC’s gross NPAs reduced to 6.15 per cent in FY19 from 6.23 per cent. It made higher provisions for bad loans, leading to a decline in its net NPAs – to 0.27 per cent from 1.82 per cent. NPA as on March 31, 2019 was Rs 24,777 crore. It has exposure of Rs 3,250 crore to Indiabulls Housing Finance, which was downgraded from AAA to AA+, exposure of Rs 1,500 crore to Piramal Capital and Housing, which was downgraded from AA+ to AA, and around Rs 6,000 crore in Yes Bank NSE 8.06 %.

LIC has raised provision toward doubtful assets by 25 per cent to Rs 25,000 crore for the last financial year after reviewing the quality and performance of investments in real estate, loans and other assets. Over the last few years, LIC has seen its exposures to stressed companies, such as ABG Shipyard, Amtek Auto and Jaypee Group, turn bad. These borrowers were among the first to be referred to the National Company Law Tribunal (NCLT) under the Insolvency and Bankruptcy Code.

Source: The Economic Times