Shareholders of IL&FS yet to decide on bailout

Though IL&FS, as part of the plan for de-leveraging the balance sheet and monetisation of portfolio, has planned to raise equity capital of Rs 4,500 crore by way of a rights issue in the first half of FY19, it has not yet finalised the plan as many of the top shareholders are either not keen on investing in the company or against the Rs 150 premium proposed by the IL&FS board, institutional sources said. The company has also proposed to avail lines of credit of Rs 3,500 crore from promoter entities — mainly LIC and SBI — for meeting any temporary liquidity requirement. However, both LIC and SBI are not showing signs of throwing more money into the debt-laden group without a firm revamp plan in place.

“The participation of shareholders and the extent that they would participate would probably be known on September 29, 2018,” said Vibhav Kapoor, Group Chief Investment Officer, IL&FS.

“IL&FS is now in the D (default) grade of rating agencies. It’s not easy for LIC or SBI to put depositors’ money into such a group with the lowest rating. IL&FS will have to come up with a proper restructuring plan. Any funding at this stage will go down in the drain. LIC should not go on bailing out weak firms,” said an official who did not wish to be identified. LIC which initially showed signs of supporting the funding plan of IL&FS seems to be distancing itself from the group. LIC Managing Director Hemant Bhargava who became non-executive chairman of IL&FS — after long-time head Ravi Parthasarathy quit on health grounds — has stepped down from the board with effect from September 15, 2018. The IL&FS board then appointed Sunil B Mathur, Independent Director and former Chairman of LIC as Chairman of the company.

“A detailed revamp plan has been formulated which has been approved by the board. The board has approved the rights issue and in the forthcoming EGM to be held on September 29, 2018, the authorized capital is proposed to be increased to accommodate the rights issue. It is expected that all shareholders will reveal their plans regarding participation in the rights issue in that meeting,” Kapoor said.

When asked whether LIC and SBI have gone back on the fund infusion plan, Kapoor said in an e-mail reply to queries from The Indian Express: “The liquidity infusion by LIC and SBI is still under consideration.”

Kapoor said the asset sale plan has already started to take shape. “We are hopeful that Binding Term Sheets/ Share Purchase Agreements up to eight road assets would be signed over the next couple of weeks. Certain other assets have also been identified and in some cases investment bankers are being appointed to carry out the sale in a systematic way.”

According to Kapoor, currently there is nothing in the pipeline as far as introduction of a strategic investor is concerned. “However, IL&FS would be open to such an eventuality if the shareholders are in agreement. In fact, three years ago, the plan to induct a strategic investor had almost fructified but got aborted at the last minute due to difference in valuation expectation by some shareholders,” Kapoor said.

According to official sources, any funding by promoters or shareholders will happen only after the Reserve Bank of India’s audit of IL&FS following its default of Rs 1,000 crore raised from SIDBI in the inter corporate deposits (ICD) market. On September 15, 2018, IL&FS made a disclosure to the stock exchange that the commercial papers (CP) which were due on September 14 could not be serviced by the company. IL&FS is a Core Investment Company (CIC) registered with the RBI. Several of the group’s debt instruments, in which mutual funds have invested a big amount, will mature in the coming months.

When contacted, LIC did not comment on the funding and revival plan for the IL&FS group.

While downgrading the company’s rating on debt worth Rs 14,248 crore to D status this week, Care Ratings said “the rating revision takes into account the recent instances of irregularities in servicing of debt by the company.” Instruments with ‘D’ rating are in default or are expected to be in default soon.

Rating agency ICRA, which also downgraded its Rs 8,075 crore debt to ‘D’ category, said the liquidity position at the group levels remain under challenge. Over and above the support provided by IL&FS, IL&FS Financial Services Limited (IFIN) which is a wholly owned subsidiary of IL&FS also had exposure to certain IL&FS group entities that have increased over a period of time. The Reserve Bank of India (RBI) has directed IFIN to reduce its exposure to group companies and comply with regulatory norms by March 31, 2019.