AS the new IL&FS board readies to meet on Thursday in Mumbai, Uday Kotak, the chairman of the board appointed by the government, met Finance Minister Arun Jaitley and senior government officials over the last two days to prepare a blueprint for revival of the infrastructure finance company. Another member of the new board Vineet Nayyar met top executives of IL&FS (Infrastructure Leasing & Financial Services) in Mumbai on Wednesday to prepare the ground for management takeover of the company.
Sources in the government said the new board would take a look at the short-term and long-term debts of the company and the viability of servicing those debts. The key components of the resolution plan will comprise IL&FS meeting its short-term loan obligations, while long term debts are likely to rolled over and restructured. The government is unlikely to pump in any money in IL&FS at this stage and existing shareholders will have to take care of its immediate liquidity needs, the sources said.
“The new board is making an making an assessment of the financial situation of IL&FS and will submit its report to the government soon. The immediate priority is to arrange liquidity to meet short-term obligations to prevent any contagion. Long-term debts will be rolled over or restructured,” the official said.
The resolution plan to be submitted may likely involve debtors taking a 10 per cent hair cut in their exposure to IL&FS. “This may reduce liabilities by about Rs 8,000 crore to Rs 9,000 crore,” a source said. Also, public sector companies may be asked to restructure their receivables from IL&FS and its group companies. The resolution plan is likely to be ready mid-October, sources in Ministry of Corporate Affairs said.
Government departments and undertakings, which owe money to IL&FS, are being asked to speed up payments to the infrastructure company, the sources said. The National Highways Authority of India is among the entities that owe money to the company and its subsidiaries.
A source confirmed that Nayyar had a day long meetings at the company’s headquarters with top officials and took an overview of the group’s businesses and financials. On Monday, the government appointed a six-member board led by Kotak Mahindra Bank Managing Director Uday Kotak to takeover the management of IL&FS following an order by the National Company Law Tribunal’s Mumbai bench. The supersession of the board was the necessary first step towards restoring the confidence of the financial market in the IL&FS Group, the government had said.
IL&FS has to repay around Rs 2,500 crore to banks and debt paper holders by March 31, 2019. This includes a total of Rs 1,085 crore worth of commercial papers issued by the company that are coming up for repayment in the next six months during October 29, 2018 to March 13, 2019. The IL&FS group company has also raised Rs 285 crore of short term debt from MUDRA (Micro Units Development and Refinance Agency), which is due for repayment on November 17 this year.
“Meeting short-term obligations is a top priority as more defaults could freeze the CP-CD market,” a finance ministry official said, referring to commercial paper, corporate debt market. IL&FS group has a total debt of around Rs 91,000 crore. IL&FS and group companies have defaulted on loan repayments in recent weeks, causing a liquidity squeeze in the CP-CD market. The RBI has tried to infuse liquidity in the market to prevent the IL&FS-led contagion from spreading in the market.
The SFIO (Serious Fraud Investigation Office), meanwhile, has started probing the IL&FS holding company as well as its 169 subsidiaries, the sources said. The SFIO will also look into how senior management kept getting hefty salaries and dividend payouts despite a serious fund crunch.