Debt-ridden IL&FS scraps dividend to its shareholders ahead of AGM

While raising funds from investors in August, beleaguered financial institution Infrastructure Leasing & Financial Services (IL&FS) painted a bullish picture of its operations and did not give any indication that within few weeks of the issue closing, it will start defaulting on its debt repayments.

In its private placement prospectus of August 21, IL&FS announced that it will pay a dividend of Rs 6 a share to its equity shareholders and is current on all of its debt obligations. IL&FS raised Rs 500 million from its debt investors with a greenshoe option of Rs 250 million.

The issue closed on August 27, as per the prospectus. The group relied on good ratings from Care and Icra to market its issue that took on record its standalone financial numbers for fiscal year 2018 — which showed a profit of Rs 5.84 billion and no hints of its consolidated losses of Rs 24 billion.

But on August 30, IL&FS announced that it has slashed dividend to Rs 1 a share and on Thursday — just two days before its annual general meeting — it scrapped the entire dividend payout to its shareholders.

The decision was taken after its debenture trustee — Centbank Financial Services — did not give permission to offer dividend to its shareholders, according to an IL&FS filing.

The scrapping of dividend did not come as a surprise to IL&FS investors, considering the company moved the National Company Law Tribunal (NCLT) under Section 230 of the Companies Act to recast its debt worth Rs 910 billion. The NCLT is yet to hear the case. 

A meeting called by the Reserve Bank of India with the shareholders of IL&FS is on schedule, said a source close to the development. The meeting will discuss how the shareholders — led by Life Insurance Corporation of India (LIC) and State Bank of India (SBI) — can chip in to salvage the company.

On Saturday, IL&FS shareholders will vote on the rights issue proposed by the company with a premium of Rs 140 a share.

IL&FS shareholders include LIC which owns a 25.34 per cent stake, HDFC Ltd which owns 9.02 per cent, Central Bank of India (7.67 per cent) and SBI (6.42 per cent).

These institutions jointly hold around 49 per cent stake in IL&FS while foreign institutional investors including Japan’s Orix Corporation and Abu Dhabi Investment Authority hold a 23.54 per cent and 12.56 per cent stake, respectively.  

As a part of the plan for de-leveraging the balance sheet and monetisation of portfolio, IL&FS now plans to raise equity capital of Rs 45 billion by way of rights issue and raise a line of credit of Rs 35 billion from LIC and SBI to meet any temporary liquidity requirement.

IL&FS is seeking to launch its rights issue at the rate of Rs 150 a share which will not be subscribed by IL&FS employees who own 12 per cent stake in the company and by few lenders like Central Bank of India which itself came under the RBI’s preventive corrective action in June last year.

One of IL&FS’s creditors, Small Industries Development Bank of India (SIDBI), moved the NCLT Mumbai against IL&FS seeking its money back. IL&FS owes it close to Rs 10 billion. IL&FS also moved the NCLT on Monday, “seeking certain reliefs” in connection with filing of scheme of arrangement.

The scheme will be prepared in compliance with applicable laws and subject to necessary consents of the shareholders, creditors and board of directors of the relevant entities, the company said in a filing with the BSE.

Many of IL&FS’s lenders are expecting a haircut of 30-40 per cent on their exposure to the company and to its group companies.

The subsidiaries which have moved the NCLT include IFIN, ITNL, IL&FS Energy Development and IL&FS Engineering & Construction Ltd.

The other companies include roads and construction companies.

Timeline
 

August 21: IL&FS launches offer document for debenture issue
August 27: Offer for private placement closes
August 30: IL&FS cuts dividend to Rs 1 a share from Rs 6 a share
September 14:  Defaults on its commercial papers
September 27:   Cuts dividend to zero before AGM