Govt pledges liquidity support to IL&FS group

New Delhi: After moving the National Company Law Tribunal (NCLT) to replace the board of distressed investment firm Infrastructure Leasing & Financial Services Ltd. (IL&FS) with a state appointed one, the government on Monday said the company would be provided liquidity support while a turnaround plan was executed.

The government has also observed that it has noticed misrepresentation of facts by the company, which will be investigated by the Serious Fraud Investigation Office (SFIO).

“The government stands fully committed to ensure that needed liquidity is arranged for IL&FS from the financial system so that no more defaults take place and infrastructure projects are implemented smoothly,” said an official statement.

Also read:Why IL&FS may not be out of the woods

The move to replace the board of directors of IL&FS was triggered by a series of defaults by group companies in August and September on term-deposits, short-term deposits, inter-corporate deposits, commercial paper and non-convertible debentures. This, along with rating downgrades in some financial instruments, had impacted the financial markets, leading to redemption pressure on mutual funds, and had hurt sentiment on the stock, money and debt markets, said the official statement.

The authorities wanted to replace the management of IL&FS with a professional one handpicked at the highest level in the government, considering the public interest involved in the group. State-owned insurer Life Insurance Corp. of India (LIC), for example, holds 25.34% in the company. A professional board will finalise a turnaround plan which will include fresh capital infusion.

The turnaround plan will include orderly sale of the assets of IL&FS group, recovery of receivables, fresh capital infusion, business restructuring and ensuring the company’s continued access to financial market. The government will take steps to ensure solvency of the company, which will also help restore confidence in the market.

Also read: IL&FS to raise ₹ 15000 crore, hike borrowing limit to ₹ 35000 crore

The IL&FS group has infrastructure and financial assets of over ₹ 1,15,000 crore, but is struggling to service around ₹ 91,000 crore in debt, which the government said was the outcome of mismanaged borrowings in the past. “The financial mismanagement of IL&FS is apparent from its rapid debt build- up and misrepresentation of the true state of financial fragility, which is being reflected in unprecedented rating downgrades,” said the statement.

Besides LIC, Japan’s ORIX Corp. holds 23.54%, Abu Dhabi Investment Authority has 12.56% and Housing Development Finance Corp. Ltd. has 9.02% in IL&FS as on 31 March 2018. Central Bank of India and State Bank of India hold 7.67% and 6.42%, respectively.

Also read: IL&FS crisis: How real is the risk in debt funds?