Eventual sale of IL&FS imminent?

The new government appointed board of debt-ridden Infrastructure Leasing and Financial Services (IL&FS) has swung into action and fast. Just a few days ago, the board met for the first time in a marathon five hour meeting to discuss the road forward.

In that meeting, Uday Kotak, the chairman of the board, said the issue at hand was complicated and the board will need time to evaluate the road forward. CNBC-TV18 has accessed the blue print of what the current board has outlined as the aspirational way forward.

"The new board has projected a 12 month timeline for a complete turnaround of the company. That’s a conservative, higher limit target. It could be sooner," said a source aware of the board’s discussion.

“It's a complex process and will take time and diligence. For now, the board has divided the turnaround plan in two phases to help streamline the process."

Phase 1: Asses Value of Assets and Subsidiaries

In the first phase, the board will be focussing on purely restoring stability and will work to ascertain the exact damage and inflation in the balance sheets of IL&FS and its group companies.

Sources privy to the developments told CNBC-TV18 that board will work on evaluating the valuation of the assets and subsidiaries. For this, investment bankers and consultants are likely to be appointed that will undergo a thoroughly due diligence process.

“It’s clear that the value of the assets and subsidiaries outlined by the company is substantially higher than what was earlier stated by the company. The new board hopes to appoint two investment banks and 1 consultant by end of October," said people familiar with the matter.

Sources amongst top consulting firms confirmed that the new board had started meeting individual teams for presentations.

Phase 2: Sale of IL&FS Imminent

A lot of comparisons are being made between Satyam Computers and IL&FS. Specially, after the former Tech Mahindra vice chairman, Vineet Nayyar, was appointed as the vice chairman and managing director of the company.

Nayyar was credited as being one of the main architect to turnaround Satyam after the acquisition of Tech Mahindra. It isn’t much of a surprise then if the question on an eventual sale of IL&FS arises.

"The board has been appointed by the government to bring it back on its feet. But it's for the interim. They are representatives appointed by the government and so the eventuality of the new board selling IL&FS isn’t unthinkable," said an analyst that tracks IL&FS but did not wish to be named.

CNBC-TV18 has learned that sale of IL&FS is clearly on the agenda and will be highlight in phase two of the turnaround plan. The decision to sell IL&FS in parts or as an entirely will be taken once phase one is completed.

“The board may even look to sell assets and subsidiaries, bring down debt, pay defaults thereby cleaning the balance sheet and then eventually selling the company to the most suitable buyer,” said people familiar with the matter.

However, expression of interests have already started coming in for IL&FS. Reports had emerged earlier on Japan’s Orix, which is also a large shareholder in IL&FS, expressing interest to buyout the company.

While sources privy to the developments confirmed CNBC-TV18 that Orix has indeed expressed interest to buy the firm, they say that it’s still in a very initial stage. “The board will continue to engage with all interested parties, but a decision will not be taken so soon,” said the source.

The next inevitable question is, if LIC will itself rescue IL&FS. To this, people familiar with the matter said that Life Insurance Corporation (LIC) may consider providing a lifeline, but a decision cannot be taken in a hurry.

What Lies Ahead?

For now, the board has already met two times. CNBC-TV18 learned that it has decided to meet at least twice a month to take stock of progress. In the meantime, officials of the ministry of corporate affairs will be briefed twice or once a week on the progress being made. Sources said that a weekly report will be submitted to the government.

“An executive committee may further be appointed to oversee the progress, but this will be an internal committee of professionals,” said the source aware of the conversations within the board told CNBC-TV18.

For now, the board is proactive in covering all the basis before a decision in any aspect is taken. Sources said it’s even studying the Satyam Computers turnaround case in detail and looking at instances of default and turnaround of companies across the globe.

A more concrete plan will be presented to the National Company Law Tribunal (NCLT) on October 15 and arguments for the same will be heard by October 31.