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No Clarity on IL&FS Rights Issue at AGM; Shareholders Against Distress Sale of Assets

The city-headquartered engineering and infra lending conglomerate owes over Rs 91,000 crore to lenders, but has been on a defaulting spree since August 27.


Updated:September 29, 2018, 4:50 PM IST
No Clarity on IL&FS Rights Issue at AGM; Shareholders Against   Distress Sale of Assets
File photo of Infrastructure Leasing and Financial Services Ltd. office in Mumbai.

Mumbai: The AGM of IL&FS, which was expected to throw up concrete plans to tide over the liquidity crisis at the government-backed infra major, Saturday failed to make any headway with no clear commitment from its large shareholders to take part in the Rs 4,500-crore rights issue.

The board of Infrastructure Leasing & Finance Services (IL&FS), headed by ex-LIC chairman S M Mathur, is scheduled to meet in Mumbai on Saturday evening to decide on the rights issue.

The development comes a day after Reserve Bank deputy governors N S Vishwanathan and M K Jain met representatives of LIC, the single largest owner with 25.34 per cent, and Japan's Orix Corporation, that owns 23.54 per cent, and reportedly asked them to ensure the systematically important NBFC does not go belly up.

The city-headquartered engineering and infra lending conglomerate owes over Rs 91,000 crore to lenders, but has been on a defaulting spree since August 27. So far, it has failed to make payments as many as nine times.

Addressing the annual general meeting (AGM), Hari Sankaran, IL&FS group vice-chairman and managing director, told the shareholders, "We have addressed several issues that have been concerning you which resolve to achieve normalcy of our operations.

"The strategy has three parts: to successfully complete the ongoing rights issue to enable the company to recapitalise itself; to sell assets and repay our creditors; and third is to be able to get liquidity to repay our debtors till our asset sale cycle begins."

The company has already launched a Rs 4,500-crore rights issue, from which HDFC and the Abu Dhabi sovereign fund, which collectively own a little over 21 per cent, are keeping away.

The company is also looking for an immediate liquidity of Rs 3,000 crore from lenders.

Some shareholders who attended the AGM, which was not opened to the media, told waiting reporters that Sankaran also told the meeting that they are in discussion with the government and the RBI to put in place a legal framework before it could sell assets.

"Proposed asset sale can happen only with a legal framework as the company is in default. They have kept a timeline of 45 days to get the legal framework in place to commitment to sell assets," a shareholder said.

Another shareholder said the management also hinted at retrenchments as well as salary and bonus cuts to reduce cost.

The debt-laden company has set a target of selling over two dozen assets to raise around Rs 30,000 crore. It is eyeing to raise Rs 12,000-16,000 crore by selling its transport business (ITNL), the shareholder added.

As many as 14 out of 19 road projects of ITNL have been completed and are saleable, they said.

"The bulk of rights issue LIC, Orix and SBI are likely to subscribe. They are hoping to raise full Rs 4,500 crore," another shareholder said.

A majority of people who spoke to the media are preference shareholders and most of them are against distress sale of assets.

"As an investor I am scared. They did not give any concrete answers. My father had done the mistake of investing in it," said a shareholder, adding IL&FS is an autonomous institution and "we need not trust any entity just because it is a government-backed institution".

The Abu Dhabi Investment Authority, HDFC, Central Bank of India and SBI hold 12.56 per cent, 9.02 per cent, 7.67 per cent and 6.42 per cent, respectively, in the cash-strapped company.

The IL&FS group is facing serious liquidity crisis and has defaulted on interest payment on various debt repayments since August 27. It has over Rs 91,000 crore in debt at the consolidated level.

On Thursday, group firm IL&FS Financial Services defaulted on bank loans, including interest of Rs 284.5 crore, to five banks. It defaulted on repayments of Rs 103.53 crore of term deposit and Rs 52.43 crore of short-term deposits earlier.

On September 24 and 26, IL&FS Financial Services had defaulted on repayment of commercial papers due on the respective days.

At a meeting held earlier this month, the key shareholders of the debt-ridden company, including LIC, SBI and HDFC, had kept a pre-condition for it to raise funds through its assets or non-core businesses, before any additional money could be pumped in.

There have been reports that IL&FS has even put on block its headquarters in the city for around Rs 1,300 crore.

On September 4, it had defaulted on a short-term loan of Rs 1,000 crore from Sidbi, while its subsidiary has also defaulted on Rs 500-crore dues to the development finance institution.

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