IL&FS group is reeling under huge outstanding debt worth Rs 91,000 crore and planning to sell assets to raise funds. Of the total debt, about Rs 57,000 is from public sector banks
The government has taken control of Infrastructure Leasing & Finance (IL&FS) after getting an approval from the Insolvency & Bankruptcy Court in Mumbai.
The National Company Law Tribunal (NCLT) allowed the government to constitute a new board for the debt-strapped lender, asking it to devise a plan for the group and file a response by October 15.
The new board will be headed by Kotak Mahindra Bank’s CEO and Managing Director Uday Kotak along with five other members - ICICI Bank Chairman Girish Chandra Chaturvedi, former head of the Securities and Exchange Board of India GN Bajpai, former IAS officer and Tech Mahindra chief Vineet Nayyar and former IAS officers Malini Shankar and Nanda Kishore.
The tribunal will next hear the matter on October 31.
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Here is a timeline of the crisis in IL&FS so far:
June: IL&FS group’s transport subsidiary IL&FS Transportation Networks (ITNL) delayed repayment of Rs 450 crore of inter-corporate deposits from Small Industries Development Bank of India (SIDBI).- Rating companies ICRA and CARE Ratings downgrades ITNL’s debt papers/credit facilities citing weak financials.
July 21: Group’s Founder and Chairman Ravi Parthasarathy steps down, citing health reasons. Hemant Bhargava, LIC MD and nominee, takes charge as Non-Executive Chairman of IL&FS group.
August 28: Group’s financial arm IL&FS Financial Services defaults on repaying a few hundred crores of rupees to its commercial-paper investors but pays the same two days later.
Early September: The group defaults on a Rs 1,000 crore term loan and its subsidiary defaults on dues worth Rs 500 crore owed to SIDBI.
August-end and early-September: ICRA, CARE and Brickwork Ratings downgrades the conglomerate’s various long- and short term borrowing programmes worth over Rs 12,000 crore to 'default' or 'junk' grades. ICRA downgrades the group twice in a fortnight and also removes all group entities from its rating watch.
Meanwhile, the Reserve Bank of India (RBI) initiates a special audit.
September 12 to 26: Several short term loan defaults take place, totalling Rs 440.46 crore (Bank loans: Rs 284.5 crore, term deposits: Rs 103.53 crore and short-term deposit of Rs 52.43 crore).
September 12: In a letter to employees, IL&FS says Rs 16,000 crore is stuck in claims and termination payments with concession authorities and it had been planning on raising Rs 45,000 crore through the issue of shares and Rs 3,500 as long term debt from shareholders.
September 15: Former LIC Chairman SB Mathur takes over as IL&FS group Chairman. IL&FS says it is planning to monetise assets to pare its debt by up to Rs 30,000 crore over the next 18 months and identifies 25 projects for the same.
September 18: Markets regulator Securities and Exchange Board of India (Sebi) says it is looking into the IL&FS matter with regards to rating agencies and the impact on mutual funds.
September 21: Fears of a debt market crisis due to an IL&FS default prompts DSP Mutual fund to sell commercial papers of Dewan Housing Finance (DHFL) which leads to a contagion effect in equity markets, which crash nearly 1,500 points. Ramesh C Bawa, MD and CEO of IL&FS Financial Services resigns.
September 24: IL&FS defaults again and loses access to fund raising through commercial paper market for up to six months from the date of repayment of this obligation. IL&FS board seeks relief from NCLT to work out an arrangement with shareholders, creditors and board of directors. SIDBI threatens to file a case at the NCLT for non-repayment.
September 28: RBI meets top shareholders and raises concern on the crisis
September 29: At its Annual General Meeting (AGM), IL&FS decides to raise Rs 4,500 crore through a rights issue and raises borrowing limit to Rs 35,000 crore from Rs 25,000 crore. The company appoints Alvarez and Marsal as specialist agency to execute the debt restructuring plan.
October 1: NCLT judgment allows government to assume control and institute a new board under the chairmanship of Uday Kotak and five other new board members.
Default impact:
A series of defaults by IL&FS group companies in August and September on term deposits, short term deposits, inter-corporate deposits, commercial paper and non-convertible debentures and rating downgrades in some and default on some other financial instruments results in a massive sell-off in shares of non-banking financial companies (NBFCs).
This causes redemption (repayment) pressure in mutual funds holding such financial instruments and adversely impacts sentiment in the stock, money and debt markets. This creates a large systemic risk, leading to good quality debt papers being sold at steep discounts to meet redemption demand.
The government tells NCLT that the collapse of IL&FS may lead to a collapse of many mutual fund companies.
About IL&FSOver 30 years, IL&FS has helped develop and finance projects worth about 1.8 lakh crore and its transport subsidiary is building about 14,000 lane-km ilometers in over 30 projects, the company says on its website.IL&FS is known for building the Chenani-Nashri tunnel -- India’s longest road tunnel at 9 km.
It was incorporated in 1987 and initially promoted by Central Bank of India (CBI), Housing Development Finance Corporation (HDFC) and Unit Trust of India (UTI). Over the years, new institutional shareholders including State Bank of India (SBI), Life Insurance Corporation of India (LIC), ORIX Corporation of Japan, and Abu Dhabi Investment Authority (ADIA) invest in the group.
Currently, the group is reeling under a huge outstanding debt of Rs 91,000 crore and planning to sell assets to raise funds. Of the total debt, about Rs 57,000 is from public sector banks.
According to the government, it has infrastructure and financial assets exceeding Rs 115,000 crore.
IL&FS has 169 group companies as on 2017-18, including subsidiaries, joint venture companies and associate entities.