The crisis-hit Infrastructure Leasing and Finance Limited (IL&FS) group has addressed a debt of about Rs 43,000 crore and is confident of addressing an additional debt of Rs 14,400 crore, taking its total debt recovery to Rs58,000 crore by March next year. In a presentation, IL&FS says, "Significant portion worth Rs 50,000 crore of estimated recovery would be addressed by September 2021. We expect to address a debt of about 95% or Rs 58,000 crore out of the estimated recovery of Rs 61,000 crore by March 2022. Since there is a high number of residual entities with low recovery potential, it would remain beyond March 2022. The incremental recovery value in these 89 small entities is worth Rs 3,000 crore and will take some more time and we are exploring all options to address this debt, but cannot put a timeline for the recovery."
The resolution of around 95 entities, with an estimated debt recovery of Rs 3,000 crore, of the beleaguered Infrastructure Leasing and Financial Services (IL&FS) group, will take place well beyond March 2022, the board of IL&FS said in its latest update on the resolution process. According to the Board, by March 2022, around Rs 58,000 crore, or 98 per cent of the estimated amount will be recovered, but a large number of residual entities with low recovery potential would still remain beyond March 2022.
Debt-laden Infrastructure Leasing and Financial Services (IL&FS) on Wednesday said it expects to address ₹58,000 crore or 95 per cent of its estimated debt recovery target by March 2022. In April this year, the group had revised its estimates for aggregate debt recovery to ₹61,000 crore beyond September 2021.
Since taking over IL&FS Group on Oct 4, 2018, the New Board faced significant challenges - Complex corporate structure with 347 entities - 172 domestic, 175 foreign, Rs. 99,000+ Cr debt with very high leverage (debt to equity of 17:1 as of Mar’18), Multiple business verticals, 4 layered structure, presence across 11 countries, Significant intra-group exposure with risks not commensurate to revenue streams, Multiple and diverse stakeholders – Government Cos, State Govts, Indian/ Foreign private players. New Board expects overall recovery of around Rs 61,000 Cr (61%) Recovery estimate includes recovery spanning both, resolution and liquidation. Rs. 43,600 Cr. (44%) of total estimated recovery addressed as of 31 May 2021, Recovery from IBC cases has been 39 % through resolution and 3.5 % through liquidation.
The estimated recovery from the IL&FS resolution process at around 61% of overall group debt is better than the average 39% recovery by lenders under the Insolvency and Bankruptcy Code (IBC) process. According to C S Rajan, MD of IL&FS, the company has managed this through a combination of court-approved sales and settlements. Given that there is no legislative or regulatory regime to deal with group insolvency, the board adopted a multi-pronged approach.
SEBI has restrained IL&FS Securities Services Limited from acquiring any new clients for a period of two in a case related to unauthorised transfer of mutual fund units. The market regulator has also imposed a penalty of Rs 26 crore on the company. SEBI's action is based on a complaint by Dalmia Cement East Limited alleging fraudulent transfer of mutual fund units worth Rs 344.07 crore by Allied Financial Services Pvt. Ltd (AFSPL). Dalmia Group, vide letter dated February 27, 2019, alleged that IL&FS Securities Services Limited, a member of NSE Clearing Limited, was also involved in the fraudulent transfer of the units.
For decades now, both the capital-markets watchdog as also the department of corporate affairs have worked to enhance the role of independent directors (IDs); the Kotak Committee had noted that they form the backbone of the corporate governance framework worldwide as also in India. Apart from the auditors who are to keep vigil on financial transactions, making sure they are kosher, it is IDs who need to keep tabs on the goings-on within a company to ensure everything is above board. In reality, this is next to impossible, given promoters hold an average of 50% of the equity in the top NSE 500 companies—save for the 'professionally' run ones like an ITC or an L&T. Not surprisingly, they run the businesses as their fiefdoms and, given this, it is hard for IDs to blow the whistle as it were. While institutional shareholders are able to get wind of any adverse event, minority shareholders are left clueless. Indeed, the numerous corporate scams of the past decade—and instances of CEOs who have been arrested or charged with impropriety—are evidence that the presence of big-shot IDs has made little difference to the quality of corporate governance. Among the biggest instances of fraud have been Yes Bank and IL&FS and, most recently, the Gautam-Thapar-promoted CG Power, all of which had some big names on their boards.
What Has Worked: IL&FS. Just as some big defaulters have been dealt with kid gloves, similar sympathy was evident in the case of Ravi Parthasarathy, founder and long-term chairman of Infrastructure Leasing & Financial Services (IL&FS). He was finally arrested on the basis of a private complaint, while the government remained perplexingly frozen. Interestingly, the resolution of the gargantuan, 347-company IL&FS group is doing a lot better over three years than what the Reserve Bank of India (RBI) has managed with Punjab and Maharashtra Bank Cooperative Bank (PMC Bank) or PSBs and investigation agencies are doing with scores of other mega defaulters. In October 2018, the government appointed banker Uday Kotak as chairman of a new board (mainly retired bureaucrats) to handle the resolution. It was backed by expensive but crack teams of lawyers and auditors whose success rate now appears better than that of banks and regulators. Here is some data put out by IL&FS. The 347 companies in the group have been reduced to 167 and are expected to drop further to below 100 by the end of the year. This was done by shutting down or selling off a large number of foreign and local subsidiaries. Anyone who has closed a company in India would know the herculean effort and red tape involved in getting this done in less than three years.
IL&FS has recovered Rs 1,925 crore from Haryana Shehari Vikas Pradhikaran (HSVP), the state's urban planning agency, as interim termination payment in the Gurgaon Metro Project case. This payment follows the Supreme Court's March 26, 2021 order that ruled in favour of IL&FS in the metro case. IL&FS's subsidiaries Rapid Metro Rail Gurgaon (RMGL) and Rapid Metro Rail Gurgaon South (RMGSL) had developed the projects. The Supreme Court order bodes well for IL&FS in its recovery attempt from state governments that have been holding payments after the group went bankrupt. For instance, IL&FS has around Rs 500-crore claims on the government of Jharkhand as annuity on the road projects.
Infrastructure Leasing & Financial Services (IL&FS) on Sunday said it received Rs 1,925 crore from the Haryana Shehari Vikas Pradhikaran (HSVP), the state's urban local authority, as interim termination payment for the Gurgaon Rapid Metro system that is now run by the Delhi Metro Rail Corporation. The Supreme Court had, on March 26, 2021, directed HSVP to deposit 80 per cent of the total debt amounting to Rs 2,407 crore within three months into the escrow accounts of the two IL&FS subsidiaries, Rapid Metro Rail Gurgaon (RMGL) and Rapid Metro Rail Gurgaon South (RMGSL).