MUMBAI: Key officials in IL&FS see the Life Insurance Corporation’s stalling of a deal with
Piramal Group in 2015 as the trigger behind the present capital crunch. The beleaguered infrastructure financier had been seeking capital for over three years and one route was bringing in Piramal Group chairman
Ajay Piramal as a shareholder.
While the board has decided not to oppose the government move to take over, some members want to place on record their reading of what is the root cause behind the current crisis. According to sources, while scouting for capital three years ago, IL&FS was keen to get on board Piramal, who was looking to grow his financial services business. In 2015, a deal was almost finalised where the industrialist would pick up stake in the group at Rs 750 per share. However, it did not go through as
LIC — which is the main shareholder with a 25.34 per cent stake — had stuck to a valuation of Rs 1,150.
At that point, LIC’s current chairman
V K Sharma was the corporation’s nominee director on the board. Neither did LIC agree to the price, nor did it bring in capital through a rights issue at a much lower price. “Now, three years later, the corporation is not bringing in funds at a price of even Rs 150, although the shares have been valued by an independent valuer at Rs 350,” sources said.
LIC had earlier shied away from increasing its shareholding on the grounds that insurance regulation prevents it from taking a strategic stake.
Although it had recently made public statements that it would support IL&FS, the conditionalities placed for investing in the rights issue made it impossible to comply with them in a month.
In the board superseded on Monday, LIC had two nominee directors — its MD Hemant Bhargava and another nominee Praveen Kumar Molri. The board chairman S B Mathur is also a former LIC chairman and was brought in to replace Bhargava, who stepped down to avoid conflict of interest as he is also on the investment committee of LIC.
IL&FS sources said that the group’s bailout of Satyam’s real estate entities, which includes Hill Country Properties, had resulted in substantial funds being locked in. Since the property under development was saddled with litigation, the outgo was much higher with Rs 2,300 crore still invested. One of the biggest challenges for the new board would be to bring in a management capable of getting its arms around the group with 169 subsidiaries and associate companies. The new board would also have to find people to run its subsidiary IL&FS Financial Services, where the CEO and five board members resigned last week.
