The Employees Provident Fund Organisation (EPFO) has lost over half of its Rs 1,200 crore investment in erstwhile DHFL, the mortgage lender which was acquired by Piramal Enterprises nearly a year ago through the insolvency route. Following suggestions from consultancy firms, the retirement fund body adjusted the Rs 613 crore loss in principal amount in its last fiscal’s income.
The EPFO had invested Rs 1,361.74 crore in DHFL between April 2010 and February 2018 in secured non-convertible debentures (NCDs). The bonds were to be matured in 2020 and 2023. Of the total portfolio, Rs 800 crore had an early redemption option.
However, as DHFL’s ratings were downgraded in February 2019, EPFO exercised the early redemption option, but DHFL remitted just Rs 200 crore to EPFO. DHFL did not remit the balance and also defaulted in interest payment since September 2019.
Meanwhile, DHFL was dragged to insolvency court. On June 7, 2021, the National Company Law Tribunal (NCLT) approved Piramal’s plan for resolution of DHFL. As per the approved resolution plan, the absolute recovery to the secured NCD holders was around 44.89%. As on September 29, 2021, EPFO’s holding in DHFL was Rs 1,161.74 crore and the interest in default was Rs 160.39 crore.
“The total amount received in cash as per the resolution plan is Rs 249.25 crore. And the total face value of securities received from resolution process is Rs 299.45 crore. The total amount invested but not received as on September 30, 2021 was Rs 613.07 crore and the amount of interest due but not received was Rs 160.39 crore,” EPFO informed members of the Central Board of Trustees (CBT) ahead of their last meeting held on Saturday. CBT is the highest decision-making body of the EPFO.
While EPF Scheme, 1952 provides, “All expenses incurred in respect of, and loss, if any, arising from, any investment shall be charged to the Fund”, EPFO sought suggestions from various consultancy agencies. One suggestion was that since EPFO did not create any provision against the DHFL debt, it may recognise the difference between the book value in balance sheet and the actual monetary receipt as loss in income.
The other suggestion was that since the principal amount of Rs 613.06 crore which was the loss to EPFO towards its investment in bonds, it can be adjusted against the profits that EPFO may earn through the transactions such as redemption/ call or put option or any other transaction. The interest portion is not required to be booked as loss since the same was not accounted for as income earlier.
However, the EPFO has recently informed the CBT members that it still hopes to recover the unrealised amount using options available under law.