Without clarity on whether the government will release payments, it’s critical for IL&FS to liquidate assets to avoid being dragged to a bankruptcy court. Disputes over contracts, delayed approvals for projects and rising interest rates have led to a cash crunch at the lender, resulting in IL&FS missing several repayment obligations.
A bankruptcy may choke the government’s infrastructure push and slow down economic growth.
“The (IL&FS) board has recommended that some of the assets be sold to meet the liquidity requirement," said one of the three executives cited above.
IL&FS has hired SBI Capital Ltd to find an investor for the majority stake in IL&FS Financial Services, which reported a ₹ 99.6 crore profit in the year ended 31 March.
“We have been mandated to find a majority shareholder in IL&FS Financial Services, wherein we are engaged," a spokesperson for SBI Capital said in response to an emailed query.
Parent IL&FS reported ₹ 584.32crore profit and had net assets valued at ₹ 6,950.19 crore. It reported a profit through dividend income from many of its 121 Indian units and 52 foreign subsidiaries. IL&FS also has 12 Indian associates, three foreign associates, 36 Indian joint ventures and six foreign joint ventures, according to the 2018 annual report.
The SBI Capital spokesperson added that his firm was also hired to analyse the road portfolio and suggest the course of action for IL&FS Transportation Networks Ltd (ITNL)—the IL&FS unit that builds roads. “SBI Cap has advised that six projects could be terminated and 10 operating projects could be sold," the spokesperson said.
These measures, according to the second executive, should assure investors, including Life Insurance Corp. of India (LIC), Housing Development Finance Corp. (HDFC) and State Bank of India, which are currently debating if more money should be invested in the debt-laden firm. Any bailout by IL&FS investors will be known on 29 September, when IL&FS holds its extra-ordinary general meeting.
Meanwhile, Il&FS is trying to recover dues from various government departments.
“The claims that we (IL&FS) have on government organizations in terms of receivables...that goes up to ₹ 16,000 crore...we are expecting around ₹ 10,000 crore to come from the governments in the near to mid term," said the second of the three executives cited earlier.
An email sent to a public relations firm hired by IL&FS seeking comment remains unanswered.
On 17 September, rating agency ICRA downgraded the credit rating of IL&FS to default, after it failed to meet repayment obligations of ₹ 12,000 crore in short-term and long-term borrowings. The firm’s credit rating has been downgraded twice by agencies in the past two months. It also defaulted on a ₹ 1,000 crore loan from Small Industries Development Bank of India on 13 September. On the following day, it failed to redeem commercial papers worth ₹ 105 crore.
Following the defaults, the Reserve Bank of India (RBI) ordered a special audit of the company.
“IL&FS is by no means bankrupt," the first executive said. “Cash flow is the problem... ITNL is the problem. It has a debt of ₹ 40,000 crore, which is a result of extended loans for doing projects. A lot of it happened due to delays in meeting contractual liabilities... Money has not come from governments and governmental organizations. So who is to give money? I can’t see the government bailing out the firm."
Typically, an infrastructure company takes a loan from a bank for a certain period of time to complete a project. But project delays, often because of 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.
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Infrastructure companies can claim money from the government or any compensation for cost overruns only after a project is completed.
“There have been numerous communications made to the ministries for clearing the invoices," the third executive said. “We have been questioned and told that don’t you know this is how infrastructure projects are carried out in the country. If this is the way, then god bless our country. Projects are stuck on account of land clearances, environmental clearances. You expect the projects to be completed but then who services the loan? What kind of system are we having where firms like IL&FS have their money stuck in projects, but the projects have not got all clearances or money has not been paid despite the completion of projects?"