Blame game begins at IL&FS as ex-independent directors defend their role

Ousted independent directors of Infrastructure Leasing & Financial Services Ltd (IL&FS), whose board was packed off on Monday, have defended their role by pointing out that they knew of the impending financial crises for two to three years.

They said they pushed for alternative solutions such as selling the company, hawking some of its assets, and an initial public offering, but the nominee directors of the shareholders did not endorse their suggestions.

An ousted independent director said: “We, together with the management, had pushed for many solutions as it became clear that banks will no longer refinance 10-year loans for a similar tenure, which was being done to finance long-gestation infrastructure projects. Therefore, the company was forced to take short-term debt to complete some of the ongoing projects and to pay its interest, which was not sustainable.”

But the director added that the nominee directors of the shareholders “not only did not endorse our suggestions of raising capital, but did not come up with an alternative solution either, though they represented large financial institutions”. He pointed to some key attempts by independent directors.

An offer by Ajay Piramal, who was ready to pay Rs 600-650 a share to buy ILF&S, was rejected by LIC because its independent valuation pegged it at Rs 1,200.

A proposal for an IPO was also not followed up and monetisation of assets was not pursued quickly.

But a senior executive of LIC said it was unfortunate it was being considered the villain of the piece. 

“LIC representatives on the board have been open to business proposals, including asset monetisation, in the past three years. While exercising fiduciary responsibility as an investor, the institution expects transparency and high-quality corporate governance from the management at IL&FS. Very little happened in terms of asset monetisation,” the executive pointed out.

Another independent director said asset monetisation met with challenges, which the old board was trying to tackle. “The old board was planning orderly sales of assets but we needed time to do that. One issue was that because the credit rating was very low, selling assets would have got us a pittance. So we had to do it in an orderly manner by getting a regular plan in place. The old board had said it would get an agency to work out a scheme.” 

The former director said they needed time to prepare the scheme for monetisation and that was why they went to the National Company Law Tribunal for more time.

He said with more time in the hands of the new board, asset monetisation would be much easier.

LIC, which is the largest shareholder with over a 25.34 per cent stake, has one nominee director on the board. The other stakeholders include State Bank of India (6.42 per cent), Central Bank of India (7.67 per cent) and two nominees of Orix Corporation (23.54 per cent). 

The ousted director pointed out that the problem arose also because of the lack of long-term financing for large infrastructure projects. 

“Unlike in Japan or the US, where you have 20- to 30-year financing options, in India the maximum you can get is 10 years. So projects had to be refinanced after 10 years. But with problems of non-performing assets in banks, they were not long willing to roll over loans even for IL&FS. So IL&FS was forced to take short-term loans to pay the interest and complete the projects on hand. But it stopped financing long-term infrastructure projects from 2015-16 and stuck to EPC (engineering, procurement and construction) contracts.”

Finding faults

  • Ousted independent directors claim that nominee directors did not come up with alternative plans after shooting down their proposals
  • Ajay Piramal was ready to offer Rs 600-650 a share to buy IL&FS, but LIC rejected it, according to a former director; a proposal for an IPO was also not followed up
  • A senior LIC executive said very little happened in terms of asset monetisation
  • Problems, he says, arose because of the lack of long-term finance available for large infrastructure projects

Ex-independent directors extend support to Kotak

Former independent directors of IL&FS have written to Uday Kotak, member of the new board, extending their “complete support” in the revival of the entity. In the letter, they have mentioned about IL&FS being unable to raise additional equity despite several attempts, and the “asset-liability” mismatch. The five former independent directors said the Centre's action was correct as it enabled reaching out to various counterparties, from a position of strength and clarity. PTI


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