Updated By: LatestGKGS Desk
IL & FS : Effect of debt mutual fund, issues and payment
Infrastructure Leasing and Financial Services (IL & FS): Effect of debt mutual fund, issues and interest payment
IL&FS refers to Infrastructure Leasing and Financial Services, a group of companies. They lend money to infrastructure projects because the size and duration of those loans make them very hard for regular lenders to be involved.
IL&FS gets its money by issued debt instruments, which are essentially a lending contract that says that the leader will be repaid according to a contract.
These contracts usually specify a duration, interest rates and when interest and capital are paid.
IL&FS has not been able to make the interest payments, which is the minimum requirement with most debt instruments, on one kind of instrument it issues, which indicates that they are out of cash.
Given that the loans they call in are longer term, they are unlikely to get cash from those loans being repaid, which means that all those investors who bought these debt instruments are worried that they will not be repaid.
The chain effect leads to panic and falling share prices of companies that hold these instruments, and those to the next and so on.
Several of the companies here are insurance and mutual fund companies, which makes the situation even more alarming.