Mumbai: After the key shareholders denied any immediate credit facility, IL&FS, the finance conglomerate which is facing trouble as of now, is looking forward to government and regulatory intervention to fend off increasing debt defaults and a potential bankruptcy.
The IL&FS management is writing to the finance ministry and the RBI about a looming crisis in the Mumbai-based group with nearly Rs 1 lakh crore of public debt, people directly aware of the matter said. IL&FS is set to default on more commercial papers and face loan recalls in the coming week after shareholders, led by LIC and SBI, during a board meeting on Saturday deferred extending a Rs 3,000 crore loan sought by the conglomerate.
Sources said IL&FS was hoping to draw the government’s attention to avert a possible implosion of a large infrastructure builder and financier — either by the state-run shareholders extending bailout loans or by asking the state investors to snap up the group’s roads and tunnels put up for sale.
This follows shareholders asking the unlisted IL&FS to speed up asset sales to tide over the liquidity crisis. “The shareholders said they are committed to support but didn’t decide on bridge loans sought by the besieged management,” sources said. IL&FS has called for an EGM on September 29 to approve raising authorised capital ahead of a possible Rs 4,500-crore rights issue.
Text messages and calls to IL&FS senior executives and spokespersons didn’t elicit response at the time of going to press.
The shareholders reportedly told IL&FS to dispose of some assets in the next 30 days. IL&FS has been in discussions to sell a portfolio of 26 build-operate-transfer (BOT) road projects to multiple investors like Lone Star, Isquared Capital and National Infrastructure Investment Fund (NIIF), among others. But as these discussions took time to materialise, it has also decided to sell the 4-lakh-sqft HQ at Bandra Kurla Complex in Mumbai for Rs 1,280 crore. IL&FS top brass informed shareholders that they were close to striking some monetisation deals but needed urgent loans to meet debt repayments and to halt a gathering crisis after it began defaulting a month ago.
With no immediate liquidity in sight, some lenders are likely to trigger loan recalls and may even decide on taking IL&FS to the bankruptcy court. The management has reiterated that the group has recoverable capital that is more than covers its debt. It continues to hold that the net present value of assets is more than the liabilities by Rs 5,000 crore, even if all of them were to be paid off today.
Last week, the net asset value of 25 mutual fund schemes were hit after the credit rating agencies downgraded debt securities issued by IL&FS and its subsidiaries.
State-run LIC is the largest shareholder owning a fourth of the conglomerate’s equity, while Orix Corporation of Japan owns 23.5 per cent. Other shareholders include Abu Dhabi Investment Authority, HDFC, SBI and Central Bank of India.
While the IL&FS seeks government and RBI support, the management said it has proactively worked on raising capital for several years, including a failed merger deal with billionaire Ajay Piramal. The management was of the view that it was necessary to get investors who were not subject to intense regulatory scrutiny like LIC, SBI and HDFC.
LIC has proposed S B Mathur as the new chairman of the debt-ridden company since Hemant Bhargava is also in the executive committee of the insurance behemoth that decides on investments. Bhargava had taken charge as chairman only in July after Ravi Parthasarathy stepped down on health grounds after heading IL&FS for three decades.
