LIC had sought a higher valuation, keeping into account its investor interests
Three years ago, the Piramal Group proposed to acquire a 35 percent stake in IL&FS in a deal that could offer a lifeline to the cash-strapped infrastructure lender. But unhappy with the valuation, IL&FS' biggest shareholder, Life Insurance Corporation of India (LIC) objected.
Sources told Moneycontrol, the Ajay Piramal-led Group offered Rs 740-750 per share, but LIC refused to accept anything below Rs 1,200 per share.
In an affidavit filed with National Company Law Tribunal (NCLT), former IL&FS managing director Hari Sankaran said LIC’s decision to not back this deal worsened the crisis in the group.
The Piramal deal would have generated Rs 8,500 crore of investible funds in the new merged entity, Sankaran said in the affidavit.
While LIC did not immediately decline the proposal, sources said it took several months to review the deal. Later, it sought a higher valuation which was not acceptable to the parties. Due to this, the deal between IL&FS and Piramal group was stalled.
But people privy to the negotiations held in 2015, contend that LIC was not wrong in its stance.
“LIC was not wrong in seeking a higher valuation when the deal was proposed in 2015. Being one of the large shareholders, LIC wanted adequate value generation for the venture,” said an official privy to the development.
LIC did not respond to a query sent by Moneycontrol.
The life insurer invests funds out of its policyholder’s account. Any investment decision that it takes in investee companies impacts the policyholder returns. Hence, the insurer’s investment team does a closer scrutiny of each company that it is invested into and also looks into the business decisions it takes.
This was a time when IL&FS was already facing a mini cash-crunch due to several delays in financing and project take-offs.
This is not the first time where LIC raised concerns about a deal in an investee company. In 2013, when Maruti Suzuki had presented a proposal to allow parent Suzuki Motor Corporation to develop manufacturing facilities in Gujarat through a 100 percent subsidiary with Maruti Suzuki, LIC had objected to the deal.
After several rounds of discussion between Maruti Suzuki, its parent Suzuki and LIC, it was decided that Suzuki will own and develop cars at the Gujarat plant, instead of a subsidiary.
Debt crisis at IL&FS group
The first signs of trouble in the IL&FS group emerged in June when it defaulted on inter-corporate deposits and commercial papers (borrowings) worth about Rs 450 crore. Over the next two to three months, at least two rating agencies downgraded its long-term ratings.
IL&FS, which has missed several debt payments since August and has been downgraded by three rating agencies, as a result, has filed an application with the National Company Law Tribunal (NCLT). IL&FS group has over Rs 91,000 crore in debt.
Among the group companies, its financial services arm IL&FS Financial Services also defaulted on interest payment on commercial papers as well as debt payments.
NCLT approved the takeover of IL&FS board by government nominees on October 1, saying mismanagement at the crisis-ridden financier makes it a fit case for superseding of the board under Article 241 of the Companies Act.
A new six-member board led by veteran banker Uday Kotak has taken charge of the company. The other members are former SEBI chief GN Vajpai, ICICI Bank Chairman GC Chaturvedi, Tech Mahindra's Vineet Nayyar, and former bureaucrats Malini Shankar and Nand Kishore.
