More defaults by stressed financier Infrastructure Leasing and Financial Services (IL&FS) and its subsidiaries are a distinct possibility as several entities within the group are facing operational cash gaps till 31 March, according to the latest progress report from the company.
Alvarez and Marsal, the resolution adviser to IL&FS, has estimated that close to 100 entities within the group have operational cash gaps. These include IL&FS itself, ITNL (IL&FS Transportation Networks Ltd) , Elsamex (India) and several other subsidiaries of ITNL, IL&FS Energy Development Co. Ltd, and several of its subsidiaries, IL&FS Engineering and Construction Co. Ltd, IL&FS Environmental Infrastructure & Services Ltd, IL&FS Skill Development Corp., IL&FS Technologies Ltd, IL&FS Township and Urban Assets Ltd, and IL&FS Maritime Infrastructure Co.
In the Second Report on Progress and Way Forward, submitted to the National Company Law Tribunal (NCLT) in Mumbai on Monday, the new IL&FS board said Alvarez and Marsal is developing a 13-week cash flow forecast to optimize cash flow and is reviewing the existing capital structure of entities within the IL&FS group, assessing incremental funding requirements for capex /working capital at the relevant entity level, classifying entities based on debt serviceability and viability. It is also assisting in identifying entities suitable for monetization and identifying encumbrances created on assets of various entities within the IL&FS group and approvals for divestment at holding company level.
In this report, the Uday Kotak-led board has informed the NCLT that finding a single solution for the IL&FS fiasco and its ₹91,000-crore debt is not possible. A resolution at the parent company level, which would involve significant capital infusion at IL&FS from credible and financially strong investors, with a condition that such investors along with the new board engage with the creditors such that it will lead to an overall resolution across the group, is not feasible. The only options left, the board said, is hiving off and selling entire business verticals to willing buyers, or, if that fails, going for asset-level resolution, which would involve asset-by-asset solutions explored through various methods.
Upcoming asset sales
In this context, the new board of directors is evaluating and initiating a few more divestments, such as IL&FS Education, IL&FS Technologies, ONGC Tripura Power Co. and IL&FS Paradip Refinery Water Ltd. IL&FS is already inviting interested bidders to participate in the sale of the group’s securities services businesses and its renewable energy assets.
The board is also implementing cost-cutting measures including salary rationalization, letting go of superannuated consultants, and discontinuation of certain businesses and verticals, which will save IL&FS about ₹100 crore annually. Phase 2 of manpower cost-cutting initiatives, includes talent restructuring and amalgamation of roles, which will yield an approximately 50% savings in the wage bill of the IL&FS group, the report said. IL&FS will also terminate lease rentals on guest houses used by group firms, which will save it ₹5.6 crore annually and close offices in various locations, saving another ₹4.9 crore. From February, the board also plans to generate revenue by leasing out the Mumbai office space, which can bring in ₹13.5 crore in rent and ₹6.7 crore as security deposit.
Stress on funds
Circling back to stressed fund availability, the report said some lenders have marked lien on or appropriated funds from some group entities, making them unable to fulfil operation and maintenance payments (including salaries), harming concession agreements and causing disruption to activities that will harm the value of the assets.
Source: December 5, 2018, Livemint