Crisis-hit IL&FS to raise Rs 150 bn, hike borrowing limit to Rs 350 bn

IInfrastructure Leasing & Financial Services (IL&FS) has again defaulted on repaying loans — this time the amount in question is about Rs 2.7 billion — even as it received the shareholders’ nod to raise up to Rs 150 billion through debentures.

Cash-strapped IL&FS informed the BSE on Sunday that the company was unable to service its obligations on account of loans from banks and financial institutions of Rs 2.23 billion due on September 28 and Rs 470 million due on September 29. 

Earlier, it could not service repayments due on September 18 and 14. Also, there was a delay in servicing some inter-corporate deposits, which resulted in the downgrading of the company.

 

Now the group flagship and holding company, IL&FS, and key group entities carry either the default ‘D’ grade or a sub-investment grade rating. The shareholders approved the company’s proposal to raise up to Rs 150 billion by issuing secured non-convertible debentures through private placement. They also gave the nod to increase the borrowing limit from Rs 250 billion to Rs 350 billion.

The IL&FS group has a complicated structure, with the holding company owning stakes in its financial services arm as well as the subsidiaries that operate its infrastructure assets. IL&FS held its annual general meeting (AGM) of shareholders on September 29. The board of IL&FS in its meeting after the AGM took four important decisions. First, it will develop a comprehensive and restructuring plan to demonstrate to shareholders and lenders that it is self-sufficient in repaying its liabilities. 

Second, it appointed specialist firm Alvarez and Marsal to come up with a restructuring plan for the group. Third, the company will pursue arrangement to satisfy creditors and shareholders that it has the capacity to service debt and equity. Finally, it will implement asset monetisation activity, which is consistent with the restructuring plan. The shareholders also approved the proposal to withdraw the final dividend on equity shares for FY18. The company had issued notice for such a move (withdrawing the final dividend) on September 26. They passed the motion to treat an interim dividend on preference shares for FY18 as the final dividend.

They also approved the proposal to increase the authorised share capital from Rs 15 billion to Rs 16.04 billion to facilitate the rights issue of equity shares. On August 29, the board of directors of IL&FS had approved a rights issue of 300 million equity shares at Rs 150 per share, aggregating Rs 45 billion. 

The issue will be completed by October 30. As of March 31, IL&FS’s net worth was Rs 74 billion. The main shareholders of the group have a strong financial standing. Life Insurance Corporation of India, Orix Corporation of Japan, State Bank of India and Central Bank of India are among the key shareholders of IL&FS. 

The AGM also gave the nod for re-appointing Arun K Saha joint managing director and chief executive of company for five years. Meanwhile, the company has said Hemant Bhargava, director of the company, has stepped down from the board with effect from September 28. The board has appointed to the board Rakesh Kumar, who is Life Insurance Corporation of India’s nominee.

According to rating agency Moody’s, the group's repayment risks will remain significant because of the weakening of its credit metrics. Over the last decade, the debt in the group has increased significantly on account of investments in new infrastructure ventures.

Sagging fortunes
 

• It's defaults on commercial paper from August sparked concern among households holding mutual funds invested in such debt, and forced banks and mutual and pension fund managers to brace for further losses
• IL&FS on Saturday appointed Alvarez and Marsal to devise a restructuring plan that will be implemented upon approval by the board and stakeholders