MUMBAI: The six-member government-nominated IL&FS board has its task cut out.
It not only needs to devise a resolution plan for the parent entity -- IL&FS -- but also has to solve issues of group entities including dissolving existing boards and inducting new directovs to ensure continuity of operations.
As per the Ministry of Corporate Affairs, IL&FS has about 169 subsidiaries and associates. Only three are listed and just six account for nearly 60 per cent of the consolidated revenue.
"Naturally, the new board has to dismiss the boards of subsidiaries and appoint new directors," said Shriram Subramanian, Founder, InGovern Research Service, a proxy advisory services firm.
Currently, most of the subsidiaries have common board members like Arun Saha, K ramchand, and ramesh Bawa. "With the government superseding the parent company's board, these directors will have to step down from subsidiaries," Subramanian added.
Some of the large subsidiaries like IL&FS Financial Services (IFIN), are in dire need of funds and have been defaulting debt payments. In fact, IFIN's board in July even approved a proposal to increase the company's authorised share capital from Rs 1,050 crore to Rs 2,750 crore, but is awaiting shareholders nod. "In the absence of equity capital, survival of the company deteriorates and its networth erodes subsequently. The board will have to quickly identify buyers for some of the projects and raise emergency capital," said R Vaidyanathan, former professor of finance, IIM-Bengaluru.
He added that the incoming directors have to prepare an assessment report comprising the liquidity position and needs of crucial subsidiaries and negotiate with creditors to restructure long-term debt, so that it won't choke growth.
"Success depends on how much time each of the nominated directors can afford, as they have to come up with a resolution plan in next weeks," explained Subramanian.
Just last week, as a pre-emptive measure, IL&FS moved the NCLT and sought resolution under Section 242 of the Companies Act. Such a move will allow the company negotiate with creditors to restructure its debt. The NCLT hearing will come up Friday.