There is no clarity yet on Rs 3,500 crore credit line from SBI and LIC, a shareholder said.
State Bank of India (SBI), Life Insurance Corporation (LIC) and Japan's Orix will likely participate in Infrastructure Leasing & Financial Services’ rights issue worth Rs 4,500 crore.
"There is a rights issue which is running and will be over by October end. LIC, SBI, and Orix are going to subscribe to bulk of it. They are hoping to raise Rs 4500 crore," a shareholder, who attended the IL&FS annual general meeting (AGM), said.
LIC, with a 25.34% stake, is the largest shareholder in IL&FS. Orix Corporate is the second-largest shareholder with a 23.54% stake.
related news
The shareholder, who did not want to be named, added that there is no clarity on Rs 3,500 crore credit line from SBI and LIC.
Layoffs, pay cuts on cards?
The management is even mulling laying off employees and salary cuts. "To reduce costs, the company said it is looking at retrenchment and salary cuts," another shareholder said.
'Money won't come back'
Investors who attended the AGM were anxious about the way forward for IL&FS. "‘What is the state?’ ‘What do we expect in terms of safety of our capital’, were the questions the minds of many,” the shareholder said. "Majority of people who spoke today we're preference shareholders."
Another shareholder who has invested about Rs 22 crore in the company said the arrogance was evident in the management and they have no clarity on how they will get the funding. "I don't think my money is coming back. They have no concrete plan on capital, they have not confirmed that LIC and SBI has assured anything. They had no answers when I questioned the management and its auditors," the shareholder told Moneycontrol. He has written to Finance Minister Arun Jaitley seeking a CBI probe into the matter.
Shareholders felt the management, which doesn't want to sell assets at "stressed valuations", failed to provide a sound solution. "As an investor, I am scared. They did not give any concrete answers. My father had done the mistake of investing in it," another aggrieved investor said. "Investors need to learn that an entity shouldn't be trusted just on the basis of government backing it has."
“IL&FS is looking to raise Rs 12,000-16,000 crore from sale of assets of the transport business IL&FS Transportation Networks (ITNL),” one of the investors quoted earlier said, adding that 14 assets, including the headquarters, out of 25 have been “completed and are saleable”.
"The asset sale can only take place with a legal framework because the company is in default. They have kept a timeline of 45 days to get the legal framework in place to a commitment to sell assets. They are working with the RBI and the government to get the legal framework in place," the shareholder said.
Management speak
"In today’s AGM, we addressed several issues that has been concerning shareholders. These issues revolved around to achieve normalcy of our operations, the elements of our strategy has three parts a) to have a successful rights issue to enable the company to recapitalise itself; b) to sell assets which we have built over last few decades to ensure value can be upstreamed and use to repay our creditors; c) to be able to get liquidity to repay our debtors till our asset sale cycle begins. These strategies are explained in some details to our shareholders," Hari Sankaran VC and MD, IL&FS said after the AGM.
IL&FS, an unlisted infrastructure lending giant with over 150 subsidiaries, has been making headlines of late for all the wrong reasons. The company’s debt was downgraded over the past few weeks for default of interest to its bondholders.
On September 28, the Reserve Bank of India (RBI) in a meeting with large shareholders of IL&FS raised concerns about the ongoing debt crisis in the group.
The central bank accessed the situation and sought the shareholder's opinion about how the situation could be better managed. This is the first such official meeting between the banking regulator and IL&FS shareholders.
Read — Comment | Liquidity infusion a short-term fix; IL&FS rot runs much deeper
The finance company has defaulted on seven debt repayments between September 12 and 27. The defaults were five bank loans, one deposit, and one short-term deposit.
As on March 31, IL&FS' total outstanding debt stood at Rs 91,091.31 crore at the group level, with most of its operating assets owned by its subsidiaries. Around Rs 5,756 crore worth of debt is due for repayment over the next one year.