MUMBAI: THE IL&FS crisis was in the making for the past 3-4 years, and marquee shareholders including LIC, SBI, and HDFC were “all aware of the picture”, said R C Bhargava, former independent director, IL&FS. Stating that the crisis occurred due to a mismatch of assets and liabilities, he said several attempts to fix the gap did not work.
“There was a mismatch between the tenure of assets and liabilities (in IL&FS) and has been discussed by the board for the last 3-4 years. All (shareholders) were aware,” Bhargava told TNIE.
He, however, dismissed the notion that no efforts were undertaken. “An IPO was planned twice, but people didn’t want shares of an infrastructure company. A rights issue didn’t happen because shareholders weren’t willing to subscribe. The proposal to bring an outside investor didn’t go through as one of the shareholders rejected it,” he recalled.
On Monday, the government superseded IL&FS’ board and inducted its own nominees. Five former board members led by past LIC Chairman S B Mathur on Tuesday sent a missive to the new board extending support.
IL&FS’ debt, at Rs 91,000 crore, is a frisson of disaster foretold and any default could spark a financial catastrophe. Yet shareholders and the board, comprising government nominees did not raise red flags. Instead, they kept calm and carried on, forcing the company to resort to a borrowing binge.
“It’s when alarm bells should ring, so that companies don’t lock themselves in a struggle against size,” reasoned Shriram Subramanian, founder, InGovern Research Services.
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In three years, debt grew 40 per cent, and with half the subsidiaries in the red, IL&FS couldn’t service interest payments. Borrowing more wasn’t an option as it maxed out on loans, and efforts to monetise non-core assets remained just that. “Shareholders should bring equity capital, but they refused to commit even until last Saturday,” said Bhargava.
The government’s move to induct a new board instills confidence among shareholders and creditors, but challenges remain.
The Uday Kotak-led board has to crack the impossible trinity of finding liquidity, improving capital and selling off assets.
Experts aren’t ruling out distress sales like Satyam.
“The board has to act swiftly and could be working with an internal timeframe of 5-6 months. So expect some fire sales,” said R Vaidyanathan, former professor of finance, IIM-Bengaluru.