MUMBAI: Any potential collapse of IL&FS, which is crying for a cash injection, will be death by a thousand cuts for all stakeholders.
More so, stakes are high for the government, considering its near 40 per cent exposure in the holding entity (indirectly via LIC, SBI and Central Bank of India), besides its association with multiple IL&FS subsidiaries and associate companies awarding contracts. Clearly, LIC chairman V K Sharma’s remarks to prevent the company from sleepwalking into a crisis, is not without a reason.
The bleak reality, however, is that one in every two IL&FS entities are loss-making. Of the 240-odd revenue contributing subsidiaries, associates and joint ventures, a startling 122 are in deep red as on FY18. A year before, it was 177.
The company’s inability to make a dime out of the projects is partly due to procedural delays. For instance, IL&FS Transportation Networks, which accounts for 11 per cent of the consolidated losses, incurred huge cost overruns, which the company blames it on delays on part of “authorities” (government) and for which it even filed claims.
With revenue realisation hitting rock bottom, the unlisted parent entity incurred a consolidated net loss of Rs 1,868 crore in FY18, as against a profit of Rs 142 crore in FY17.
The next thing IL&FS did was only logical. With help from SBI Capital Markets, it bucketed projects under terminated, divested or to be continued with, to wriggle out of the financial mess. It also put non-core assets on the block, hoping to raise much-needed capital, but in vain.
The final blow came last month, with subsidiaries defaulting debt payments, as its promoters failed to arrange interim finance. The cheer-leading squad — creditors, who hitherto flexibly restructured debt and rating agencies, whose star grading has now proved to be a bit of a sideshow — have jumped to the jury box, ordering penalty shootouts.
Currently, IL&FS has an interest rate spread of 7-14 per cent on term loans, bonds and inter corporate deposits. Of the Rs 91,000 crore consolidated debt (as against Rs 80,000 crore in FY17), about Rs 57,000 crore is with banks, as per its FY18 annual report published last month. The move approaching NCLT could thus be an effort to stall insolvency proceedings and instead negotiate revised moratorium with lenders.
Besides, it also foreign currency borrowings, a small part of which was swapped with rupee borrowings and IL&FS could consider a repeat this fiscal. As on March 2018, it raised about Rs 5,900 crore via commercial papers.