IL&FS board revises debt recovery target upwards to Rs 61,000 crore

Topics IL&FS | Uday Kotak | NCLT

So far, the board of IL&FS has addressed Rs 43,100 crore, which represents more than 70 per cent of the overall revised targeted recovery value of Rs 61,000 crore
Infrastructure Leasing and Financial Services (IL&FS) has upped its estimates on the aggregate debt that will be addressed to Rs 61,000 crore from Rs 56,000 crore earlier, in its quarterly update on the resolution process of the assets of the conglomerate.

This will help the firm,  which created a major disruption in the shadow banking sector after it went bust in 2018, resolve 62 per cent of the total overall fund based and non-fund based group debt of around Rs 99,000 crore.

“The upgrade in potentially addressable debt by Rs 5,000 crore has been largely on account of improved valuations, better operating performance, and enhanced recoveries from non-group exposures”, the board said.

So far, the board of IL&FS has addressed Rs 43,100 crore, which represents more than 70 per cent of the overall revised targeted recovery value of Rs 61,000 crore and 44 per cent of the overall debt of over Rs 99,000 crore.

The board led by Uday Kotak, Chairman IL&FS said by September of the current fiscal year (FY22) more than Rs 51,000 crore would be addressed. Hence, essentially, an additional debt of Rs 7,950 crore would be addressed in these six months. And, post-September, the board is expecting to recover an additional Rs 9,950 crore.

Of the Rs 43,100 crore debt addressed by the board so far, Rs 26,800 crore is based on completed entity monetisation initiatives and accrued cash balance. And, the rest of the amount (around Rs 14,350 crore) is expected from resolution and restructuring applications filed with and awaiting approval of the National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT). Also, it includes the award by the Supreme Court which has asked the government of Haryana to pay IL&FS Rs 1,926 crore in the Rapid Metro Gurgaon case.

Currently, out of 347 entities that the IL&FS group had under its umbrella at the beginning of the resolution process, 186 entities stand resolved, liquidated, or closed and the resolution of the rest 161 entities is going on. Post-September, the board is of the view that the number of entities would come down below 100 and the process of achieving this would be: liquidation of entities that are not operational currently closure of many of these entities, and sale of many of these entities.

Among the challenges in the debt recovery process, the board said, the layered structure of the group and the endeavor to ensure that ultimate creditors begin to see their money coming back have been major ones.

“The distribution to creditors has not taken place yet. It would take place at a later stage because we are building up the cash and this cash will slowly upstream up to the Holdco level. After settling the creditors at the SPV level, surpluses will upscale to the holding company level and when the resolution of holding companies take place, at that stage, distribution to the creditors of the holding companies will take place. This is the last and final stage of the resolution”, said CS Rajan, MD, IL&FS.

“We have tried to look at the possibility of interim distribution. So, we have asked our resolution advisers to look into this”, Rajan said.

Last July, the board of IL&FS had said debt worth Rs 50,500 crore would be pared by the end of the financial year 2020-2. However, they managed to address debt to the tune of Rs 43,100 crore. The key reason cited by the management for its inability to meet the deadline is the disruption caused by the pandemic. Among other reasons, the management pointed out that, delays in receipt of annuities from some certain state governments, challenges in securing consent from other stakeholders including shareholders/joint venture partners, and ongoing legal proceedings, litigation, and arbitrations by different lender groups, sub-contractors, and authorities have been major hindrances to achieving the deadline.

“We have to keep in mind what activities we as the management of the group can do and thereafter we are dependent on external functionaries. Therefore, once, we have submitted our resolution plan to the NCLT/NCLAT thereafter it is not in our control”, Kotak said on the implication of the second wave Covid on the resolution process.

Process going forward

Since January 2021, the board has addressed Rs 11,200 crore of debt, which includes the sale of Chongqing Yuhe Expressway, sale of environment business, receipt of settlement claims from the National Highways Authority of India (NHAI) for three projects, and receipt of proceeds from the resolution of Dighi Port.

Also, during this period, phase 1 of the group’s Infrastructure Investment Trust (InvIT) with a resolution value of over Rs 9,300 crore across 6 road SPVs was filed in the NCLT.

Going forward, the board is looking to sell its stake in ONGC Tripura, Warora Chandrapur, and Karyavattom Stadium, which may reduce the debt by Rs 3,750 crore. Among other things, there will also be the second phase of InvIT with a resolution value of Rs 2,920 crore across 5 road SPVs.

Beyond September, the board is looking to recover around Rs 10,000 crore, which will include stake sale in major entities such as Paradip Refinery, Mangalore SEZ, Tamil Nadu Water, ILFS Prime Terminals Fujairah, Hill County Properties, etc. The third phase of the InvIT will take place during this period which is expected to ramp the recovery amount by Rs 2,350 crore. The board is also looking to monetise its real estate holdings such as the iconic BKC office of the IL&FS group and Sabarmati buildings in GIFT city, which may fetch Rs 1,350 crore or more. Also, recoveries from the finance arm of the group -- IL&FS Financial Services (IFIN) -- through the sale of non-performing assets, recoveries from non-group investments, the release of non-fund-based limits, etc is expected to fetch the group around Rs 2,250 crore.

The group's four holding companies — IL&FS, IFIN, IL&FS Transportation Networks (ITNL), IL&FS Energy Development Company (IEDCL) — have a consolidated debt of Rs 48,000 crore, which is 51 per cent of the total debt pile.

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