IL&FS BREATHES ON LIC LIFE SUPPORT

Firm will not be allowed to collapse, all options open: Sharma

State-owned insurer LIC on Tuesday said it will not allow debt-ridden IL&FS to collapse and explore options to revive it.

The Life Insurance Corporation (LIC) has the largest shareholding in IL&FS.

IL&FS Financial Services, a group company of IL&FS defaulted on one of its commercial paper (CP) issuances due for repayment on Monday. This was the third default by the company.

LIC Chairman V K Sharma, after a meeting at the finance ministry, assured that efforts are being made to keep IL&FS afloat. "We will ensure IL&FS does not collapse. We will not allow contagion to spread from IL&FS...All options are open (including raising stake in the company)," he said.

Shares of IL&FS group firms surged up to 12 per cent on Tuesday after the announcement. The scrip of IL&FS Engineering and Construction Company soared 12.02 per cent and IL&FS Transportation Networks rose 5.74 per cent. Shares of IL&FS Investment Managers, however, ended marginally down 0.13 per cent.

The infrastructure development and finance group has been facing liquidity issues for some time and had defaulted on a Rs 1,000-crore debt from Sidbi earlier this month. On September 14, it had again defaulted on a repayment of Rs 105 crore CPs and the next day, it had defaulted on Rs 80-crore intercorporate deposits (ICDs).

Meanwhile, the finance ministry has maintained that IL&FS Group is independent

of the government and the company needs to resolve its issues.

Although the government has no holding in the company, some of the state-owned financial firms, including LIC and SBI, are shareholders of the non-banking financial company (NBFC).

"IL&FS is independent of the government. It has independent board and shareholders. So, IL&FS needs to resolve its issues on its own

and I think it is capable of doing it," Economic Affairs Secretary Subhash Chandra Garg had said.

IL&FS is sitting on a debt pile of around Rs 91,000 crore and had been downgraded to junk status by rating agencies following the default. Of this, Rs 57,000 crore are bank loans alone, most of which are from state-run lenders. LIC is the largest shareholder with a fourth of the firm's equity.