The struggle to keep IL&FS story intact a year after new board took over

The board expects to recover or resolve at least 50% of group's domestic debt; InvIT model likely for entities that have received low or no bids

When the government-appointed board started digging deep into the IL&FS mess, the findings astounded them.

The organisation, in default, and responsible for freezing the credit market for non-banking financial companies (NBFC), had a complex pyramid structure, with virtually no coordination between the heads of different verticals. 

It had 302 entities – 169 domestic and 133 international – present across 11 countries, with a four-layered structure.

Vineet Nayyar, the executive chairman, and former head of Mahindra Satyam (Mahindra acquired Satyam after the latter's promoter was jailed for major fraud) said IL&FS’ former management had no value for money. Heads of various entities fought their own turf wars.

The management did not change its course even when it was apparent things were going downhill. And the top management splurged on luxury.

“I have never seen so many automobiles in a company than I see here," Nayyar observed. "Over-expenditure was a trait. Even Satyam had far better controls; it was, in many ways, a very well-managed company as compared to (IL&FS).”

The new management, under the chairmanship of Uday Kotak, completed its one year and called for a media briefing on October 1.

The new board met 25 times in the past one year, appointed other members in the senior management, and conducted forensic audits, while preserving the inherent value in all the entities by ensuring all the entities continue as going concerns.

The team also appointed advisors for resolution, transaction, legal, claims management, forensic audits and secured a ‘calm period’ from the National Company Law Appellate Tribunal (NCLAT), so that creditors don’t disrupt the process by claiming their shares before the company is nursed back to health.

About 95 per cent of the company’s assets, or 169 of the domestic companies, were divided into green, amber and red, depending upon their debt servicing capabilities on an independent basis. At the same time, cash was conserved in the company, building Rs 5,300 crore of reserves by August 31. The wage bill was reduced by 45 per cent, by letting one third of the employees leave, but some of them left on their own accord.

Recovery of loans from non-IL&FS group entities was about Rs 1,200 crore. The group also restructured debt worth Rs 5,100 crore, moving three entities from amber to green category.

Now, the management expects out of the Rs 94,000 crore in domestic debt, at least half to be resolved, recovered or restructured. 

“(That is) our good faith view at this point of time,” said Kotak, who also got a year’s extension in his position.

“When we are saying 50-plus per cent is our estimate, we are saying that we are confident of actual resolution or recovery of at least 50 per cent of Rs 94,000 crore.”

On an immediate basis, the group is trying to address Rs 36,400 crore of debt till date, of which it expects recovery or resolution of at least Rs 30,000 crore. Low-hanging fruits would be targeted first, and the group would try to convince bankers to accept new structures for some road projects, such as an infrastructure investment trust (InvIT) model.

On an immediate basis, sale of the wind energy subsidiary to ORIX Corp, could be finalised. The amount of Rs 4,320 crore related to the Special Purpose Vehicle in question can be fully recovered through the deal, says the management.

On the other ‘green’ entities, or group firms that can service debt on their own, the management says it is trying to make these “positive equity” and then pass it on to entities that can better manage them. For now, Rs 7,930 crore of such dues are getting addressed.

For ‘Amber’ or ‘Red’ companies in roads and education, bids are being submitted to the committees of creditors (CoCs). The company has received bids of Rs 8,100 crore for these companies that hold a combined debt of Rs 10,150 crore. For entities with low or no bids, the management will consider the InvIT model.

IL&FS timeline: From junk status to possible resurrection
June, 2018	IL&FS Transportation Networks (ITNL) delays repayment of Rs 450 crore from Small Industries Development Bank of India (Sidbi)
	Rating agencies downgrade ITNL’s ratings
July 2018	Founder and Chairman Ravi Parthasarathy steps down
August 28, 2018	IL&FS Financial Services defaults
September 2018	The group defaults on Rs 1,500 crore term loan to Sidbi
	IL&FS Group continues to default on other loans
	Rating agencies downgrade the rating to junk
	Reserve Bank of India (RBI) initiates special audit
	Former LIC Chairman SB Mathur becomes group chairman
	DSP Mutual fund tries to sell commercial papers of Dewan Housing Finance (DHFL) at a steep yield

Credit to NBFCs almost chokes from all sources Ramesh Bawa, CEO of IL&FS Financial Services resigns Sidbi drags IL&FS to NCLT October 1, 2018 

Government assumes control and Uday Kotak made the chairman

April 2019 New board seeks a calm period from NCLAT October 2019

The board says expects to recover or resolve at least 50 per cent of the debt

Uday Kotak gets one-year extension as non-executive chairman of the board