IL&FS approaches NCLT against bankruptcy case, draws revival plan

Here's what you must know about the IL&FS crisis

Infrastructure Leasing & Financial Services Ltd (IL&FS) and its subsidiaries defaulted on repayment to lenders this month and the group is facing a severe liquidity crunch. The company, which helped fund India’s longest tunnel, defaulted on three non-convertible notes, and had a consolidated balance sheet size of Rs 1,158 billion at the end of 2017-18. The mounting troubles at IL&FS have shaken confidence in the sector and rocked India’s stock markets on Friday. Investors, jittery about the rare default in the nation’s money markets, sold shares of financial companies. The group has seen its various long-term and short-term borrowing programmes downgraded to 'default' or 'junk' grades by credit rating agencies, even as the regulators are also probing alleged delay in disclosure about certain loan defaults.

Among others, capital markets regulator Sebi, the Reserve Bank of India (RBI), the corporate affairs ministry and the finance ministry have received complaints about alleged wrongdoings at IL&FS and its various group entities, including the listed ones.

Here's what you must know about IL&FS crisis:

* IL&FS group is reeling from a huge outstanding debt and planning to sell assets to raise funds. The conglomerate has a total debt of Rs 910 billion, of which Rs 570 billion is from PSU banks.

* IL&FS first defaulted on commercial paper, and then on short-term borrowings known as inter-corporate deposits. It was also reported to have failed to pay Rs 4.5 billion ($62 million) in ICDs to government-backed lender Small Industries Development Bank of India (Sidbi).

* The conglomerate’s various long-term and short-term borrowing programmes have been downgraded to “default” or “junk” grades by rating agencies. Icra downgraded the group twice in a fortnight.

IL&FS shareholders

LIC, with a 25.34 per cent stake in IL&FS, is the largest shareholder in the company. Orix Corporate, Japan with a 23.54 per cent stake is the second-largest shareholder. SBI holds a 6.42 per cent stake.

What is the way ahead for IL&FS?

* The immediate need is to restore confidence

* Raise funds through assets sale

* Avoid bankruptcy

According to Bloomberg, IL&FS is seeking to raise more than Rs 300 billion ($4.2 billion) by selling assets for cutting debt. It plans to sell 25 assets and has received investor interest for 14 of them, according to a note sent to employees by Vice-Chairman and Managing Director Hari Sankaran. The company is satisfied with the valuation of the offers. The government may facilitate the sale of IL&FS’ assets, according to a report by The Economic Times. Additionally, the RBI is said to have asked IL&FS shareholders to come up with a revival plan by Friday.

* Seek Loan: According to a plan approved by the IL&FS board on August 29, the company will seek up to Rs 35 billion loans from State Bank of India (SBI) and Life Insurance Corporation (LIC). The company also intends to raise Rs 4.5 billion by issuing fresh equity shares to its existing shareholders led by LIC. The investment committees of their respective boards are yet to clear the proposal. Final clarity is likely to emerge on September 29.

* IL&FS may move NCLT against admitting bankruptcy case

IL&FS is planning to approach the National Company Law Tribunal (NCLT) with a plea that a bankruptcy case against the group should not be admitted. The company will inform the tribunal that the group is already in the process of settling its dues through monetisation of IL&FS assets and through other capital-raising programmes, reported Livemint.

IL&FS has appointed Cyril Amarchand Mangaldas as the counsel to approach the tribunal.

RBI to meet with shareholders of IL&FS

RBI has called for a meeting with shareholders of IL&FS Ltd on September 28. According to Bloomberg, the meeting would be chaired by a deputy governor of the RBI and will focus on the recent set of defaults reported at IL&FS and its subsidiaries. On the agenda is also a discussion on a capital infusion plan that the shareholders will take up on September 29 at an annual general meeting of the company.

This week crucial for IL&FS

The impact of IL&FS’ defaults will be known by the end of this week. IL&FS and its subsidiaries will have to shell out close to Rs 20 billion by next weekend (September-end) to meet financial liabilities. It has sought an immediate loan of Rs 35 billion from LIC and the State Bank of India to bail it out. If funds do not come by next weekend, it would default on its repayments, which would lead to a domino effect across the financial market, warn insiders. IL&FS has an outstanding debt of Rs 910 billion. India’s top mutual funds have invested in the debt instruments of IL&FS and its subsidiaries and they will have to clear debt of other companies to meet redemption pressure.