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Centre moves to sack board of indebted financier IL&FS, seeks court’s nod
The government told the National Company Law Tribunal that it wants to take control of IL&FS by “sunset” and appoint 10 directors on a board it constitutes
India has sought court approval to replace the management of an Indian financier that’s roiled markets by defaulting on debt, arguing that a change was needed to stop the financial collapse of Infrastructure Leasing & Financial Services Ltd.
The government told the National Company Law Tribunal that it wants to take control of IL&FS by “sunset” and appoint 10 directors on a board it constitutes. It has identified people, including India’s richest banker Uday Kotak, to be on the new board and a prominent person to head it, according to Sanjay Shorey, joint legal director at the ministry of corporate affairs. The ministry has only sought to take control of a company on two prior occasions. The court is expected to announce its judgement at 2:30 p.m. in Mumbai.
Rescuing IL&FS group, which has total debt of $12.6 billion -- 61% in the form of loans from financial institutions -- is vital for authorities to stem the risk of default spreading to other lenders in the world’s fastest-growing major economy. IL&FS stockholders over the weekend separately endorsed a plan to raise as much as 150 billion rupees ($2.1 billion) through a non-convertible debt sale, increase the firm’s borrowing limit and boost its share capital to enable a rights offering.
“Dismissal of the IL&FS board will raise uncertainty on the firm’s plans to sell off assets and pay off debtors,” Sunil Pachisia, vice president at brokerage Pratibhuti Viniyog, said by phone. “There is a fear that the lenders may have to take deeper hair cuts once the government steps in to run the shadow bank.”
Some bankers to IL&FS were hesitant to provide fresh cash injections to the group unless the shadow lender submitted a resolution plan that included a list of assets to be sold and a time line for the sales, people familiar with the matter said after the weekend shareholder meeting. Lenders had also sought estimates from the company about the amount that could be raised through the asset sales, the people said, asking not to be named as the information is not public.
The firm had hired Alvarez & Marsal, which helped revamp Jet Airways India Ltd. in 2015 and is currently working on restructuring Essar Steel Ltd., to come up with a rescue plan.
The beleaguered group can raise 600 billion rupees by selling assets, according to the chairman of its biggest shareholder and the nation’s largest life insurer, Life Insurance Corp. of India. LIC Chairman V.K. Sharma on Friday said the insurer is open to subscribing to the lender’s rights offer.
Other investors in IL&FS also include Japan’s Orix Corp., the second-largest shareholder in the company, Abu Dhabi Investment Authority and Housing Development Finance Corp., India’s biggest mortgage lender.
Rock solid
IL&FS funds infrastructure projects across Asia’s third-largest economy and is considered to be systemically important by the central bank. Its defaults on commercial paper, once considered rock-solid, from August sparked concern among households holding mutual funds invested in such debt, and forced banks, mutual and pension fund managers to brace for further losses.
The fear added to pressure on borrowing costs for all companies in India’s credit market, led to a slump in corporate bond issuance and sparked a brief but sharp sell-off in equities. There was also concern that the group’s troubles could spread to other shadow banks and crimp Prime Minister Narendra Modi’s infrastructure plans before elections next year.
Reserve Bank of India officials on Friday met the top shareholders of IL&FS in Mumbai to assess a debt resolution plan.
The company has already received satisfactory offers for 14 out of the 25 assets put on the block, according to an internal memo seen by Bloomberg.
IL&FS has felt the pain from interest rates that have soared to multi-year highs for short-term borrowings. On top of that, some of IL&FS’s own construction projects including roads and ports have faced cost overruns amid delays in land acquisition and approvals. Disputes over contracts have locked about 90 billion rupees of payments due from the government.
IL&FS’s outstanding debentures and commercial paper accounted for 1% and 2%, respectively, of those markets as of March 31, according to Moody’s Investor Services. Its bank loans made up about 0.5% to 0.7% of banking system loans, Moody’s said.
(This story has been published from an agency feed without modifications to the text. Only the headline has been changed.)
