The newly constituted board of Infrastructure Leasing & Financial Services (IL&FS) will hold its first meeting on Thursday in Mumbai to take stock of the situation at the beleaguered group, according to a senior official of the Ministry of Corporate Affairs. The board is also expected to discuss issues such as the appointment of the management team.
The Uday Kotak-led board, which is awaiting regulatory approvals from the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (Sebi), is likely to submit its preliminary assessment report by next week. It will also communicate with shareholders and the suspended management before preparing its report.
According to officials, the board is likely to examine the balance sheet of the company, particularly its claim of Rs 1.15 trillion worth of assets. Also, the government could later examine why the nominee directors of State Bank of India and Life Insurance Corporation did not raise any red flag over the developments in IL&FS, they said. The whistleblower for IL&FS was a regional director under the MCA.
On Monday, the National Company Law Tribunal (NCLT), Mumbai, had superseded the board of the infrastructure financier with six new directors, after the government moved a petition to remove the previous board of directors.
The NCLT agreed to a new board, which includes Kotak Mahindra Bank Managing Director (MD) and Chief Executive Officer (CEO) Udak Kotak, former Sebi Chairman G N Bajpai, ICICI Bank Chairman G C Chaturvedi, Tech Mahindra Vice-Chairman Vineet Nayyar, Director General of Shipping Malini Shankar, and former Indian Administrative Service officer Nand Kishore. The government wants to have a 10-member board.
Soon after the announcement on the formation of the new board, Nand Kishore had said the first priority would be to ascertain the problem the company was facing. “The diagnosis is important to get clarity and begin to work on challenges. This will mean examination of books including financial statements and bringing stability to operations will have to be a priority,” he said.
Last Saturday, the ousted IL&FS board had cleared raising loans up to Rs 150 billion and equity of Rs 45 billion by way of a rights issue. It had also appointed consulting firm Alvarez & Marsal to craft a detailed restructuring plan. The new board is likely to discuss all of these on Thursday.
The crisis at the group due to the liquidity crunch had rattled markets and created panic. In early August, loans and non-convertible debentures (NCDs) of IL&FS were carrying “AAA” rating. But with series of defaults delays in repayments, rating agencies effected multi-notch downgrade and finally brought the rating down to “D” by the middle of September.
The consolidated debt of the company increased to Rs 910.91 billion in 2018 from Rs 486.71 billion in 2014. Interest outgo rose to Rs 79.22 billion from Rs 39.70 billion during the same period. By 2018, the company has not even been making enough profits to take care of its interest expense leading to the default. Out of the Rs 910 billion debt obligations, Rs 570 billion has been borrowed from the public sector banks.
The government in its petition before NCLT had said defaults by IL&FS Group companies
in August and September 2018 on deposits, commercial paper and debentures and the rating downgrades had a massive impact on the financial markets leading to redemption pressure on mutual funds, which held such financial instruments. This redemption created a large systemic risk leading to quality papers being sold at steep discounts to meet the redemption demand.
On the table
Discuss appointment of the management team
Provide immediate liquidity to the group
Prepare a restructuring plan and business model
Devise a strategy for communicating with stakeholders