No decision on IL&FS liquidity infusion yet; board plans restructuring

Board appoints Alvarez & Marsal to prepare recast plan for the group

With no clarity on immediate liquidity infusion and rights issue by shareholders, cash-strapped Infrastructure Leasing & Financial Services (IL&FS) in its board meeting on Saturday appointed global professional services firm Alvarez & Marsal to prepare a comprehensive restructuring plan for the group.  

Hari Sankaran, vice-chairman and MD, IL&FS, said in a video statement that the board took four important decisions. Alvarez & Marsal would develop a detailed restructuring plan for the group to demonstrate to shareholders and lenders that it was self-sufficient in repaying its liabilities. So far, the IL&FS management had been working on its revival plan.

The company will continue to pursue application under the Companies Act to ensure it has control to satisfy creditors and shareholders that it has capacity to service debt and equity. Finally, it would implement asset monetisation activity, which is consistent with the restructuring plan, he said.

The statement was silent on the timeline by which the restructuring plan would be presented and its subsequent roll-out. 

Shareholders would take the final decision on capital infusion and liquidity, based on the new restructuring plan, said sources.  

Besides the board meeting, IL&FS also had its annual general meeting (AGM) earlier Saturday, where Sankaran presented a three-pronged strategy before shareholders to bring back normalcy to the group’s operations. However, they are sceptical about the management's efforts to tackle problems.

Sankaran said the first element was to have a successful rights issue to enable the company to recapitalise itself. The second action point is “to sell assets which the company has built over the last few decades to ensure that value can be upstreamed and repay creditors”. The third element is to get liquidity to repay debtors till its asset sale cycle begins. 

The company plans to raise Rs 45 billion from a rights issue, which is expected to be completed by October 30. Life Insurance Corporation of India (LIC), which is the largest shareholder with 25 per cent stake, and State Bank of India have indicated willingness to participate in rights issue. Orix Corporation, Japan, holding over 23 per cent stake, is yet to commit to the rights issue.

As on March 31, 2018, IL&FS net worth was Rs 74 billion. 

In addition, the board has also given nod for recapitalising group companies to the extent of Rs 50 billion in IL&FS Financial Services, IL&FS Transportation, IL&FS Energy, IL&FS Environment, and IL&FS Education.

The company plans to raise Rs 160 billion from the sale of its operational road assets. However, some of these are in default at present, which will be a hurdle in monetising. 

The company is seeking legal recourse for the sale of its assets and has already got interest from buyers for its road assets. Faced with liquidity pressure, it may shortly speak with lenders for a moratorium on payments, said sources.

The board also approved the company’s specific asset divestment plan based on which IL&FS expects to reduce its overall debt by Rs 300 billion. Its consolidated debt is pegged at over Rs 910 billion. 

Out of a portfolio of 25 projects identified for sale, it has received firm offers for 14 projects. The company expects to complete its divestment plan over the next 12 to 18 months in a systematic and professional way to fulfil its commitments.

LIC representatives at the AGM are believed to have raised an issue of conducting review of operations, and that IL&FS should take professional help from consulting firms on sale of assets and its plan. Responding to it, the management replied that the board of directors was considering all those issues.   

Meanwhile, shareholders vented anger over mismanagement at IL&FS, with one shareholder telling the media after the meeting that he regretted having bought the preference shares a few years ago. 

Another shareholder said his family had invested in the preference shares looking at names of marquee shareholders like SBI and LIC. 

The turnout of shareholders at annual general meeting was thin. Those who attended the meeting said there were expectations that they will come in more numbers given the crisis facing the company.