IL&FS likely to get a ₹4,000 crore lifeline from LIC3 min read . Updated: 15 Sep 2018, 09:06 AM IST
LIC holds 25.34% in IL&FS, while HDFC Ltd has 9.02%, Central Bank of India holds 7.67% and SBI owns 6.42%
Mumbai: State-run insurer Life Insurance Corp. of India (LIC) is likely to subscribe to non-convertible debentures (NCDs) worth up to ₹ 4,000 crore that IL&FS Group is planning to issue in order to avail capital for servicing its debt. The NCD issuance is part of IL&FS’s ₹ 9,000 crore capital raising programme for the current fiscal year.
Two persons directly aware of LIC’s investment plans confirmed this on condition of anonymity.
Debt-laden IL&FS, which is promoted by LIC, State Bank of India and a few other private and state-run lenders, is holding a crucial board meeting on Saturday to decide on capital raising needs, especially to avoid more defaults on repayments and rating downgrades.
The first of the two people cited above said that LIC is also willing to subscribe to a large part of the ₹ 4,500 crore rights issue to be launched by IL&FS a few weeks later.
“IL&FS is looking to raise a total of at least ₹ 9,000 crore through rights issue and loans. SBI Capital Markets Ltd is working as the investment banker-cum-advisor for IL&FS’ capital raising programme," said this person.
Emails sent to LIC, SBI Capital Markets and IL&FS on Thursday remained unanswered.
LIC holds 25.34% in IL&FS, while HDFC Ltd has 9.02%, Central Bank of India holds 7.67% and State Bank of India owns 6.42%. ORIX Corp. of Japan and Abu Dhabi Investment Authority have 23.54% and 12.56% stake in IL&FS, respectively.
The liquidity infusion by LIC, through NCD purchases and rights issue subscription, will be crucial for the country’s largest infrastructure development and finance company, which is in the process of building the country’s longest tunnel—the Chenani-Nashri tunnel (9.2 km) in Jammu and Kashmir—but is struggling to repay its debt.
According to its annual report, around ₹ 5,756 crore worth of debt is coming up for repayment in the next one year for IL&FS.
As of 31 March, IL&FS’ total outstanding loans stood at ₹ 91,091.31 crore, according to the annual report. This is about 14% more than its fiscal 2017 end borrowings outstanding at ₹ 80,017.72 crore. Most of the debts arise from loans given by the group’s subsidiaries IL&FS Financial Services Ltd, IL&FS Energy Development Co. Ltd, IL&FS Transportation Networks Ltd and IL&FS Maritime Infrastructure Co. Ltd. IL&FS has 24 direct and 135 indirect subsidiaries.
Of the total outstanding debt, ₹ 57,322.15 crore is in bank loans (term loans and cash credit from banks) alone, mostly from state-run banks.
IL&FS Transport Network, the holding firm of the group’s road assets, alone has consolidated debt of Rs35,000 crore. IL&FS Financial Services has Rs17,000 crore of debt, classified as standard asset for most banks, according to a Nomura India report.
On Friday, The Economic Times reported that IL&FS will sell its corporate headquarters in Mumbai’s Bandra Kurla Complex to raise funds. It is expected to fetch Rs1,300-1,500 crore, said the report.
IL&FS recently defaulted on inter-corporate deposits and commercial papers (CP), which prompted the Reserve Bank of India to initiate an audit into the group and resulted in a number of rating downgrades. On 6 September, IL&FS Financial Services, IL&FS group’s lending arm, was barred from accessing the CP market till the end of February 2019 as it failed to repay some of its maturing CPs on their due dates, according to company filings on the Bombay Stock Exchange. The company said in its filing CPs which was due on 28 and 30 August could not be paid on the due date. These were settled in full on 31 August.
“In compliance with the Reserve Bank Commercial Paper Directions, 2017, the company will not access CP market up to 28 February, 2019," read the exchange filing by the company.
On 4 September, Moneylife reported that IL&FS has defaulted in repaying a short-term loan of Rs1,000 crore to Small Industries Development Bank of India (Sidbi).
“At the same time, a subsidiary of IL&FS too has defaulted in repaying loan worth about Rs500 crore to the development financial institution," said the Moneylife report.
Rating firm Icra Ltd. downgraded IL&FS by at least nine notches last Saturday due to the serious liquidity crunch the group is facing. The rating company has downgraded the company’s bonds and long-term loans to BB from AA+.