Additionally, the Reserve Bank of India is said to have asked IL&FS shareholders to come up with a revival plan by Friday. The defaults by IL&FS triggered fresh concerns over non-performing loans and rocked the stock markets.
The government is open to the possibility of facilitating a quick sale of IL&FS assets to public sector enterprises so that the embattled non-banking finance company can raise funds to meet its immediate liquidity requirements. “We can look if something can be done,” said a government official. The beleaguered financial firm has not approached the government with any plan.
NHAI ASKED TO CLEAR DUES
However, the government is willing to help out IL&FS considering the implications of the company going bankrupt and the fact that it is implementing big-ticket infrastructure projects such as the Rs 6,800-crore Zoji La Tunnel in Jammu & Kashmir, which will be Asia’s longest bi-directional tunnel. The government has asked the National Highways Authority of India to clear any dues it may have.
IL&FS claims it is owed Rs 16,000 crore by concession-granting authorities, which, if cleared, would help solve its liquidity problems. The government maintains the dues are much lower. The RBI wants IL&FS shareholders to come up with a rescue plan, said two senior officials aware of the development. The RBI deputy governor has called a meeting of IL&FS shareholders on September 28, where they will be nudged to propose a revival plan before lenders start taking legal action.
Lenders to IL&FS are shortlisting assets of the company that can be monetised quickly, said two senior bank officials who did not want to be identified. “Clearly, the cash flows are not matching the payments that are due in the near future,” one bank official said. “Lenders fear that many more defaults may occur in the weeks to come. To prevent a full-blown crisis, we are looking at assets that can be monetised soon.”
However, while the lenders assess the quantum of loans taken by the group, they are apprehensive that many of its assets may not fetch attractive offers considering that the market is not bullish about road and power projects. Many IL&FS projects are being implemented by 12 step-down subsidiaries and lenders said that most of them are overleveraged.
“All of these companies have borrowed with support from the parent company. The cash flow it received was ploughed back to win more contracts rather than reduce debt. Further, when payments did not come in time, they bid for more contracts to enable them to borrow more to repay other dues. This aggravated the situation,” pointed out one of the lenders. In all, the company has borrowed from 24 banks including Axis Bank, First Rand Bank and RBL Bank. At a consolidated level, IL&FS is estimated to have long-term debt of over Rs 65,000 crore and current liabilities of over Rs 39,000 crore.
The company’s troubles surfaced when it first defaulted on an inter-corporate deposit and commercial paper worth about Rs 450 crore in June. The latest default was on September 19, when it could not clear its commercial paper dues. Rating companies have downgraded IL&FS to default level, making it difficult for the firm to raise funds. “IL&FS is facing liquidity challenges across the group and its ability to mobilise funds from banks and capital markets is modest at best,” India Ratings said in a statement on September 18.
The company’s long-term debtto-equity ratio has risen to 3.08 as of March 2018, compared with 2.60 in March 2017, according to ICRA. While the government does not have direct shareholding in IL&FS, state-owned Life Insurance Corporation of India was the top shareholder in IL&FS, with a 25.3% stake, according to data as of March 31 on the term lender’s website. Among the other investors are ORIX Corporation of Japan (23.5%), Abu Dhabi Investment Authority (12.56%) and Housing Development Finance Corporation (9%). The IL&FS Employees Welfare Trust holds 12%.
Central Bank of India and State Bank of India hold 7.6% and 6.4% stake, respectively, in IL&FS and have granted loans to the company. The SBI Chairman dismissed rumours about banks being cautious about lending to NBFCs. “Some comments are being attributed to SBI about the bank being wary of lending to NBFCs. The rumours are baseless. SBI lends support to NBFCs in private and public sector within the regulatory policy framework and will continue to do so,” SBI chairman Rajnish Kumar said in a statement on Sunday.
Recent regulatory guidelines on the co-lending model open up further opportunities for collaboration between SBI and non-deposit taking NBFCs to increase lending to priority sectors, he said. “There is no concern on liquidity of NBFCs in view of their liquid cash position and availability of committed lines,” he added.