Top institutional shareholders of Infrastructure Leasing and Financial Services (IL&FS) virtually thwarted the attempts of the previous board of directors – which was superseded by the government on Monday to bring in strategic investors to bail out the crisis-ridden company, a former senior Director of the company has said.
“We needed capital for the last three years. Proposals were put forward. The price demanded by some shareholders were so high that some investors ran away. The Piramal bid was approved by other shareholders also. Others like Oman Sovereign Fund we were talking to also backed out saying lot of uncertainties. We were in dialogue. There was no possibility of other investors coming in at the price demanded (by big shareholders),” said the former IL&FS.Director who preferred anonymity.
The Piramals (Ajay Piramal group) were reportedly ready to pay around Rs 650-750 but institutions demanded over Rs 1000 per share.
The ousted board, in a last-ditch attempt, planned a special audit of the group to ascertain the real assets being held by group companies in the wake of a series of defaults. “In the last board meeting, we said let us have a special audit of the assets of the company. We have already zeroed in on Grant Thornton, one of the good firms, to do the special audit although the assets are owned by entities which are independent. It was jet few days before the takeover. It was never implemented,” he told The Indian Express.
LIC, with a 25.34 per cent stake, is the largest shareholder in IL&FS. Orix (23.54 per cent) is the second-largest shareholder. SBI holds around 6.42 per cent stake.
“Prior to this, the board had asked SBI Capital Markets to do the revival plan or a revitalisation plan which was already approved by the board. The company wanted some liquidity from some banks which were also shareholders… some capital infusion at discounted price. Shareholders did not agree for the line of credit but they agreed they will support capital (infusion) but they put so many conditions which were not possible to satisfy them in two or three months,” the ex-Director said.
On the tough conditions demanded by shareholders, he said, “they wanted to expedite the sale of assets. Road projects are not apples that you can pick up from the shop and sell. Road and power take time to sell. The buyers will then ask for distressed prices. It will be a loss to the shareholders only.”
When asked about the reasons for the downfall of the company, he said, “it’s a combination of factors. One is the gap in infrastructure funding and there was no long-term finance available. The RBI closed the window of refinancing which we were using earlier. Second, our attempt to find a new investor and persuade the existing shareholders to put in capital failed.”
Defending the role of independent directors, he said, “we did enough to highlight the issues. Independent directors are not capital providers. We are not executive management. We have said there’s no negligence on our part.”
On the red flag by the Reserve Bank of India, the official said, ”they raised it last year in the case of IFIN (IL&FS Financial services). Till March 2017, we were complying with all RBI norms at the board level, holding company etc…Till March 2018, rating agencies were clear reports and rating. What do they expect independent directors to do?”
There were five independent directors on the ousted IL&FS board. “We have, in a letter to Uday Kotak, supported the new board. But we do not agree to the allegations that independent directors were negligent and they did not take enough steps to highlight the issues.”
“Other companies in the IL&FS group are independent companies and have separate boards and auditors,” he said. ”We are happy that the government has taken over but this doesn’t mean that independent directors were negligent or they were reckless in their behaviour.”
The audit report mentioned about many concerns but this audit report was issued only in August, he said. “In the last audit report of ITNL (promoted by IL&FS), they said there were concerns about liquidity,” he said.
On why independent directors were named in the government’s petition at the NCLT on Monday but nominee directors were excluded, the former Director said, “That’s surprising. I can’t answer. They had the added advantage for every major step, the executive management personally went to the shareholders and briefed them but there was no such private briefing for independent directors. They were senior level people.”
“At the holding company level (IL&FS), what could we do?” he said.
On whether executive management was hiding things from independent directors, he said, “how can I say? Rating agencies couldn’t find out. External auditors did not find out. How can the board say they were hiding or not hiding.”
“The government, after analysing the emerging situation of the IL&FS group has come to the conclusion that the governance and management change in IL&FS group is very necessary for saving the group from financial collapse, which required an immediate change in the existing board and management and appointment of a new management,” the government said in a statement after moving the NCLT on Monday.
Hemant Bhargava, MD of LIC, who was on the board of IL&FS resigned as a Director on September 29. Bhargava was the Chairman of IL&FS between July and September 15 after Ravi Parthasarathy quit as Chairman. Bhargava quit as Chairman in mid-September in order to avoid any conflict of interest as he was in the LIC’s committee on investments. Sunil B Mathur took over as Chairman in mid-September.
The government’s move to supersede the board came after the annual general meeting of IL&FS on September 29. None of the institutions made any concrete announcement about participating in the Rs 4500 crore rights issue at the AGM.