MUMBAI: September 15 is an ominous date, and this year it would mark the tenth anniversary of Lehman Brothers’ bankruptcy and the financial crisis that ensued. Indian investors would be watching the developments from Infrastructure Leasing & Financial Services Limited (IL&FS) this Saturday. After a series of hits and misses with short-term debt repayments, IL&FS, India’s largest infrastructure development and finance company, has convened a Board meeting on Saturday to discuss fundraising and strategy.
IL&FS, with close to Rs 90,000 crore debt through a maze of group companies and special purpose vehicles created for various infrastructure projects, needs an immediate cash infusion. How soon can it get cash and how much?
Last week, amidst reports of defaults on short-term borrowings, credit rating agencies ICRA and Care downgraded several of the group’s bonds and commercial papers (CP) by several notches, creating panic in the bond market. Mutual funds that had invested in the group’s debt instruments had to cut the net asset value (NAV) of their schemes to the extent of exposure.
“The IL&FS Group has seen rating downgrades in a number of its companies, with ICRA downgrading IL&FS Financial Services to BB (from AA+) last week and IL&FS Transport Network (ITNL) to BB- (from AA) in July 2018. The group has Rs 900 billion of system borrowings and reported a loss of Rs 20 billion in FY18. Our analysis of the financials of the group’s larger subsidiaries indicates that its financial position remains stressed, leading to the rating downgrades,” Nomura said in a research report.
Life Insurance Corporation, General Insurance Corporation and various pension funds and insurance firms have invested in IL&FS’s debt instruments. Not only that, the LIC is also the lead promoter of IL&FS with a stake of 25.34 per cent. HDFC, Central Bank and State Bank of India also hold 9.02 per cent, 7.67 per cent and 6.42 per cent respectively.
Though the company has been promoted by public sector institutions that enjoyed an unhindered freedom to run it, now that things have come to such a pass, critics point at opacity. IL&FS founder and CEO Ravi Parthasarathy quit the firm in July citing health reasons. LIC appointed its managing director Hemant Bhargava as IL&FS’s non-executive chairman. Would LIC bail out the company as it did with IDBI recently? May be not, say analysts.
However, IL&FS is reported to have sought a Rs 3,000 crore working capital from LIC and SBI, apart from a proposal to raise Rs 4,500 crore through a rights issue. Indian banks, institutions, Japanese Orix Corp and Abu Dhabi Investment Authority have to subscribe to the rights issue to infuse funds.
It has also put on block several of its infrastructure assets. IL&FS would keep investors and markets jittery till the time its promoters commit funds. It definitely is too big to fail, but the question is who would bail it out.