IL&FS needs $2 billion by March 2019 to meet its financial requirements

Beleaguered infrastructure financier Infrastructure Leasing & Financial Services (IL&FS) will require infusion of at least about Rs 148 billion ($2 billion) by March next year to meet its financial requirements, said a source privy to recent developments. Most of this will be met with a combination of asset sale and infusion by shareholders.

Earlier, IL&FS was planning to raise Rs 45 billion via a rights issue and another Rs 30 billion as loan from its two shareholders — Life Insurance Corporation of India (LIC) and State Bank of India (SBI). The requirement was pegged much lower at Rs 100 billion. 

According to the source, the government had asked IL&FS shareholders to chip in with more funds to bail out the company — just before the new board took charge. 

But the representatives of the foreign shareholders, Orix Corporation and Abu Dhabi Investment Authority (ADIA), who were taken by surprise by the higher bailout figure, said they would get back to the government after talking to their headquarters. Both LIC and SBI, however, promised to invest in the rights issue.

Orix Corporation did not reply to an email on the IL&FS crisis but had issued a statement that it was looking into the situation. An email sent to ADIA did not elicit any response either. 

The lenders to IL&FS and its group companies have started taking write-offs for their exposure. BOI AXA took a write-off of Rs 1 billion, saying its exposure to commercial papers of IL&FS would mature by October 29 and IL&FS would not be able to service the amount. Some schemes of DSP Mutual Fund have already marked down their investments; other funds are expected to follow suit. 

For 2017-18, IL&FS reported losses of Rs 22 billion, eroding 22 per cent of the company’s book value in a year. The company’s calculated Ebitda (earnings before interest, tax, depreciation and amortisation) was Rs 72.7 billion, lower than the reported interest cost of Rs 79.2 billion.

The total liabilities, including parent’s liabilities, are estimated higher at Rs 1.31 trillion as of March this year, compared to consolidated liabilities of Rs 1.05 trillion mentioned in the annual report, according to a report by REDD Intelligence, a stressed debt specialist. 

In a report, it said the loans to subsidiaries or inter-company obligations of an additional Rs 260 billion were not included in the reported accounts. It also said IL&FS will have to take write-downs worth Rs 150 billion and said the equity infusion can even cross Rs 300 billion to right size the company.

IL&FS Energy Development, the energy vertical of IL&FS, has already started initiatives to divest its stake in operational special purpose vehicles like ONGC Tripura Power and wind energy assets, which is expected to generate Rs 14 billion of liquidity by March 2019. 

IL&FS Tamil Nadu Power is already in the National Company Law Tribunal (NCLT) and IL&FS has appealed against the referral in the Madras High Court.

The case for a bailout

• IL&FS will require more money to repay secured borrowers
• Asset sale to help repay investors
• Two companies in NCLT — IL&FS Tamil Nadu, Dighi Port
• Banks will have to take haircut in companies referred to NCLT
• Funds begin writing off debt exposure to IL&FS