UTI MF opposes haircut proposal for IL&FS entity

UTI Mutual Fund (MF) has taken objection to IL&FS group officials' proposal that lenders should take a 42 per cent haircut on their exposure to the group's special purpose vehicle — Jorabat Shillong Expressway (JSEL).

“UTI MF has strongly objected to the proposal shared as it completely ignored the sponsor undertaking and differentiation between secured and unsecured lenders," the fund house said in an investor note.

The note pointed out the haircut was proposed when the fund house met IL&FS officials to discuss how JSEL’S classification can be changed from an

‘amber’ entity.

‘Amber ’ entities are the entities which can only meet operational payment obligations and those to senior secured financial creditors.

A 'green' classification would allow the entity to service all its debt obligations.

IL&FS Transportation Networks —which is the sponsor for JSEL — has received 14 binding bids for 10 of its road projects, including Jorabat Shillong Expressway, as of August 30. According to the affidavit filed by IL&FS, the board of IL&FS is evaluating the bids.

In the meantime, UTI MF is exploring various other options to expedite the bidding process and following up for the same with IL&FS, NCLAT, and any other possible legal route to protect its investment in JSEL.

UTI MF has also filed an intervention application, challenging the classification of JSEL as an 'amber' entity, arguing JSEL has sufficient balances to pay its senior secured lenders (i.e. UTI MF) and ITNL. According to the note, JSEL has signed a sponsor-undertaking stating that none of the group debt will be due and paid until the time secured lenders are paid off completely.

Before IL&FS group companies were put under a moratorium last year, the repayment mechanism of JSEL involved an escrow account where the annuities (annual payments) received from the NHAI (National Highway Authority of India) was deposited and funds in this account were handled by debenture trustees, who acted on behalf of bondholders.

The note pointed out the haircut was proposed when the fund house met IL&FS officials to discuss how JSEL’S classification can be changed from an ‘amber’ entity