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Mumbai: Infrastructure Leasing and Financial Services Ltd (IL&FS) is planning to boost its authorized share capital by 4,000-5,000 crore to enable the cash-strapped group to raise money from its shareholders. The move is aimed at meeting the group’s immediate repayment obligations and avoiding further debt rating downgrades, according to two people with direct knowledge of IL&FS Group’s plans.

IL&FS’s board will meet on 29 September to consider raising the authorized share capital from 1,500 crore and, subsequently, shareholders will vote to approve the proposal at the company’s annual general meeting (AGM), said one of the two people cited above.

Expanding the authorized capital, or the maximum value of securities that a company can legally issue, will allow IL&FS to raise much-needed funds.

“We are confident that the resolution will be passed. This will help significantly in tackling the liquidity issue and meet repayment demands," said the first person.

Alongside, the board will approve a proposal to sell assets worth as much as 20,000 crore held by the company and its units, the person said. IL&FS has 24 direct and 135 indirect subsidiaries.

IL&FS, which has defaulted on several payments in the past two months following a liquidity crunch, is taking steps to raise money from its shareholders as well as sell assets to meet its immediate obligations. 

As of 31 March, IL&FS’s issued share capital was 985.93 crore. Its subscribed and paid-up share capital was 983.15 crore, comprising 128.4 million shares, 1.13 million non-convertible redeemable cumulative preference shares (NCRCPS) of 7,500 each and five million NCRCPS of 10 each.

Investors are, however, concerned that further defaults could have a contagion impact on other lenders. 

“IL&FS is only facing a temporary liquidity issue. The group has good quality assets and as per the authorized valuers, the value of IL&FS assets is more than its liabilities," the second person said. “Shareholders are ready to put in more money into the group due to IL&FS’s asset quality. But, the limit of authorized capital is restricting the group from raising additional money from its shareholders."

Once the authorized capital is expanded, the group will be able to raise money through rights issues, preferential shares and private placements of equities, the person said.

Typically, an infrastructure company takes a loan from a bank for a certain period to complete a project. But project delays, often due to regulatory clearances, result in cost overruns. Earlier, banks used to refinance these cost overruns and the loan taken, but since the banks themselves are over-leveraged, there has been a halt in refinancing activities.

Apart from increasing the authorized capital, IL&FS is planning to raise funds through sale of a number of assets. “IL&FS is looking to sell at least 25 large road projects, a majority of the group’s stakes held in the subsidiaries and land parcels during this financial year," said the first person.

On 18 September, Mint reported that IL&FS is looking to monetize assets, as the group’s key shareholders have asked the management to table a comprehensive turnaround and deleveraging plan, before talks of a potential bailout can be initiated. The decision of shareholders, led by Life Insurance Corp. of India (LIC) was conveyed to the IL&FS top management during the company’s board meeting on 15 September, said the report.

On 17 September, ICRA Ltd downgraded the credit rating of IL&FS to default after it failed to meet the repayment obligations of 12,000 crore in short-term and long-term borrowings. The firm’s credit rating has been downgraded twice in the past two months. It also defaulted on a 1,000 crore loan from the Small Industries Development Bank of India on 13 September. The next day, it failed to redeem commercial papers worth 105 crore. After the defaults, the Reserve Bank of India (RBI) ordered a special audit of the firm.

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Currently, LIC holds 25.34% in IL&FS, Housing Development Finance Corp. Ltd 9.02%, Central Bank of India 7.67% and State Bank of India 6.42%. ORIX Corp. of Japan and Abu Dhabi Investment Authority also own 23.54% and 12.56%, respectively.

As on 31 March, IL&FS’s total outstanding debt was 91,091.31 crore at the group level, an increase of 14% from the previous fiscal, as per its latest corporate filings. According to its annual report, around 5,756 crore worth of debt is coming up for repayment in the next one year.

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On 6 September, IL&FS Financial Services, IL&FS group’s lending arm, was barred from accessing the commercial paper 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 BSE. The firm said in its filing that CPs, which were due on 28 and 30 August, could not be paid on the due date. These were settled in full on 31 August.

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