For the troubled Infrastructure Leasing and Financial Services (IL&FS), 29 September will be the day of reckoning. Prospective buyers of the group’s stressed assets, panicky lenders and a considerably nervous Reserve Bank are waiting to see if at Saturday’s annual general meeting, the infrastructure financier can pull off one final trick to address all the concerns. Or, whether the once esteemed firm, and its numerous subsidiaries, will begin to buckle under the weight of the ₹91,000 crore debt.
On Thursday, news agency PTI reported that RBI had cancelled a meeting with the nine IL&FS shareholders that had been scheduled for Friday. “The meeting has been cancelled,” the agency reported, quoting an unnamed source. “As a regulator, the RBI wants to know what is the course of action and what is the roadmap that the firm is taking…It wants details of the plan for future or corrective action which are being taken,” the news report added.
The meeting, which was to be chaired by an RBI deputy governor, was scheduled following delays by IL&FS in servicing some inter-corporate deposits. The bank wanted IL&FS, the parent company, to reduce its loan exposure in group companies, wherein the ceiling had been breached. The central bank did not indicate why the meeting was cancelled.
In a stock exchange filing on Thursday, IL&FS said that it will be unable to pay dividend to equity shareholders because the company had defaulted on payment of interest on non-convertible debentures. According to the conditions of the debenture trust deed, if a default happens, the company is required to obtain prior consent of the debenture trustee, Centbank Financial Service Ltd, to declare a dividend. IL&FS had failed to get Centbank’s consent to pay out dividends.
Life Insurance Corporation of India (LIC) is the largest shareholder in IL&FS with 25.34%, while HDFC has 9.02%, Central Bank of India holds 7.67% and SBI has a 6.42% stake. Orix Corp. of Japan and Abu Dhabi Investment Authority (Adia) have stakes of 23.54% and 12.56%, respectively.
On 26 September, it was reported that Adia and Orix are in talks to acquire a controlling stake in the debt laden company.
IL&FS, which operates several subsidiaries and runs a diverse range of businesses, is primarily focused on financing and building infrastructure and power assets. The group has been in the midst of a financial turmoil following a ₹450 crore default on inter-corporate deposits in June. In August, the IL&FS board had approved a rights issue of 30 crore equity shares at ₹150 apiece, aggregating to ₹4,500 crore, which the company said will be completed by 30 October. It also approved the recapitalisation of group companies to the extent of ₹5,000 crore in IL&FS Financial Services, IL&FS Transportation, IL&FS Energy, IL&FS Environment and IL&FS Education.
However, since the August announcement, the company failed to offer a final plan on how much capital will the existing shareholders pump into the business to keep it afloat, what form this will take and when the money is likely to come in.
Meanwhile, IL&FS Transportation Networks Ltd delayed on a repayment of ₹100 crore of commercial paper in June, and then defaulted on a ₹1,000 crore loan in early September.
Credit rating agencies, which had assigned outstanding ratings to the company and its subsidiaries’ commercial papers, have now downgraded their ratings by several notches, cautioning investors.
State-run lenders to IL&FS and its group companies, mutual funds that hold IL&FS’s debt and minority shareholders of its three listed subsidiaries have to wait till Saturday to know how safe their investments in the firm are.
Source : Livemint . Septemeber 28’2018.