Single solution for IL&FS crisis, debt not possible, NCLT told

Mumbai: In its latest status report to the National Company Law Tribunal (NCLT), the new board of Infrastructure Leasing and Financial Services (IL&FS) has said that finding a single solution for the IL&FS crisis and its ₹ 91,000 crore of debt is not possible. The so-called “group” resolution, which would involve significant capital infusion from credible and financially strong investors, was not feasible, the Uday Kotak-led board said in the report.

The “group” resolution includes a condition that investors along with the new board engage with creditors, leading to an overall resolution across the IL&FS group.

The only options left, the IL&FS board said, was hiving off and selling entire business verticals to willing buyers or if that failed, going for asset-level resolution—which would involve asset-by-asset solution explored through various methods including (a) significant capital infusion (either from existing or new investors); (b) asset monetisation to retire debt; and (c) resolution/ compromise with the creditors.

Here’s a look at what the latest IL&FS NCLT report says:

Upcoming asset sales

In this context, the new board of directors is in the process of evaluating and initiating a few more divestments, such as IL&FS Education, IL&FS Technologies, ONGC Tripura Power Company and IL&FS Paradip Refinery Water Limited in the coming weeks. IL&FS is already inviting interested bidders to participate in the sale of the group’s securities services businesses and its renewable energy assets.

Dire cash gaps

The resolution advisors to the stressed financial group IL&FS has estimated that close to 100 entities within the group have operational cash gap till March 31, including IL&FS itself, ITNL (IL&FS Transportation Networks Ltd) , Elsamex (India) and several other subsidiaries of ITNL, IL&FS Energy Development Company Limited (the holding company for the energy vertical) and several of its subsidiaries, IL&FS Engineering & Construction Company Limited, IL&FS Environmental Infrastructure & Services Limited Holding company and several of its subsidiaries, IL&FS Skill Development Corporation Limited, IL&FS Technologies Limited Holding Company, IL&FS Township & Urban Assets Limited; IL&FS Maritime Infrastructure Company Limited Holding company, etc..

In the second progress report submitted to the NCLT on Monday, the new board of IL&FS has said that the resolution advisor Alvarez and Marsal is developing a 13-week cash flow forecast to optimise cash flow and is reviewing the existing capital structure of entities within the IL&FS Group; assessing incremental funding requirements for capex / working capital at the relevant entity level; classifying entities based on debt service ability and viability; assisting in identifying entities suitable for monetization; and

identifying encumbrances created on assets of various entities within the IL&FS Group and approvals for divestment at holding company level.

However, the report also pointed out that some lenders to the group have marked lien on or appropriated funds from some group entities, making them unable to fulfill operation and maintenance payments (including salaries), harming concession agreements and causing disruption to activities that will harm the value of the assets.

Cost-cutting measures

The board is also implementing cost-cutting measures, including salary rationalisation, letting go of superannuated consultants, and discontinuation of certain businesses and verticals, which will save IL&FS about ₹ 100 crore annually. Phase 2 of manpower cost-cutting initiatives including talent restructuring and amalgamation of roles, which will yield an approximately 50% savings in the wage bill of the IL&FS Group. The report said that several other initiatives are being initiated and that will bring down total manpower of the IL&FS Group by approximately 65% and wage cost by 50% respectively.

IL&FS will also terminate lease rentals on guest houses used by group companies, which will save it ₹ 5.6 crore annually and close offices in various locations, saving another ₹ 4.9 crore. From February, the board also plans to generate revenue by leasing out the Mumbai office space to other companies to other companies, which can bring in as much as ₹ 13.5 crore in rent and ₹ 6.7 crore as security deposit.

Update on overseas operations of ITNL

ITNL has overseas operations in Spain, US, Africa, UAE, Singapore and China and the initial assessment of the new board is that a lot of the overseas entities (under the ITNL group) may need to be resolved/ restructured/ divested or ultimately wound down.

For the Spanish operations of Elsamex SA, the report said that a binding offer has been received from a buyer for Elsamex’s holding in the JV (which operates a road asset in Madrid) along with a R&D laboratory that Elsamex owns. Elsamex is also engaged in negotiations with its lenders for restructuring the debt and/or induction of a potential investor.

Elsamex is undertaking 3 ‘ORPC’ projects (i.e. output-based performance and rehabilitation contract) in Ethiopia in a joint venture with ITNL which has been or will be terminated by the Ethiopian Roads Authority. There are various outstanding tax and salary payment dues in these projects.

Two projects are being executed in Botswana which are 82% and 68% completed respectively. The work for each of the projects is progressing well and is expected to be completed within the extended (approved) timeline.

ITNL also has ongoing projects in the US, Middle East, Africa and other parts of Asia, where, “in the current circumstances facing the ITNL and the group, remittance of funds from ITNL (India Operations) to offshore projects is a challenge under the regulatory and legal framework in force. The options for resolving offshore entities will be considered from among divestments, restructuring, closure etc., in accordance with local jurisdiction regulations, and the most optimum resolution will be considered/arrived at on a case to case basis.