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LIC is the largest shareholder in IL&FS, which has been reeling under a financial crisis. Graphic: Mint
LIC is the largest shareholder in IL&FS, which has been reeling under a financial crisis. Graphic: Mint

IL&FS faces impairments of ₹ 15,000 crore in loans, equity

Recovery could be constrained by quality of collateral at IL&FS group firms, says a report by REDD Intelligence

Mumbai: Crisis-hit Infrastructure Leasing and Financial Services (IL&FS) may require impairments of around 15,000 crore in loans and equity in its subsidiaries, said a report by Singapore-based REDD Intelligence. According to the report, IL&FS reported consolidated debt of 91,080 crore.

“Given the second-lien nature of the secured loans at IL&FS parent and IL&FS Transportation Networks Ltd (ITNL) parent, recovery could be constrained by the quality of the collateral (equity pledges from operating subsidiaries)," the report said.

REDD Intelligence, a Singapore-based firm that specializes in stressed debt, said the obvious stress is in the 4,220 crore equity invested in energy subsidiary IL&FS Tamil Nadu and 1,700 crore loan to the energy subsidiary and related party of that project.

“It ran into difficulties after it set up a 1,200 megawatts (MW) coal-based power plant and was only able to secure a power purchase agreement for only 540 MW. It has been filed into insolvency at the National Company Law Tribunal (NCLT)," the report said, adding that since IL&FS has 175 subsidiaries and 66 joint ventures/associates, there is not enough information disclosed to understand the viability of each project.

The report estimated that 5,500 crore in exposure to associates like Hill Country Properties Ltd, Dighi Port Ltd (currently in insolvency) and IL&FS Engineering and Construction Co. Ltd (also filed into insolvency) to have limited recoveries and therefore require impairment.

“We estimate that an 1,200-1,400 crore write-off is required at its large subsidiary Chenani Nashri Tunnelway Ltd," it said.

REDD estimated a write-off may be required for IL&FS’s 1,800-crore exposure to subsidiary IL&FS Maritime Infrastructure Co. Ltd, which has high related party transactions and reported a loss of 300 crore in FY18.

An email sent to the company remained unanswered till the time of going to press.

Following a spate of defaults by IL&FS and subsequent downgrades by credit rating agencies, the Union government superseded the company’s board under Section 241(2) of the new Companies Act, 2013.

This section enables supersession of a company’s board to prevent it from further mismanagement and to protect public interest.

The government had also said that the consolidated financial statement of IL&FS holding company and its arms and joint ventures “projected a picture through highly exaggerated depiction of non-current assets in the form of intangible assets amounting to over 20,000 crore".

The new board comprises six directors—Uday Kotak, managing director of Kotak Mahindra Bank, G.N. Bajpai, former chairman of the Securities and Exchange Board of India, G.C. Chaturvedi, chairman of ICICI Bank Ltd, and former bureaucrats Vineet Nayyar (also a former vice-chairman of Tech Mahindra), Malini Shankar and Nand Kishore.

After its first meeting on 4 October, Uday Kotak, who is the chairman of the board, described IL&FS as an extremely complex corporate with 348 entities that are part of the group—far higher than the initial estimate of 169 subsidiaries.

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