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Over the last three years, IL&FS’s total debt has jumped 44% to ₹ 91,091.3 crore at the end of March 2018 from ₹ 63,114 crore at the end of March 2015. Photo: Reuters
Over the last three years, IL&FS’s total debt has jumped 44% to ₹ 91,091.3 crore at the end of March 2018 from ₹ 63,114 crore at the end of March 2015. Photo: Reuters

IL&FS efforts to sell assets clouded by past failed attempts

The government, which through LIC's 25.34% ownership of IL&FS, did not approve the sale of IL&FS Financial Services two years ago

Mumbai/New Delhi: Infrastructure Leasing and Financial Services Ltd’s (IL&FS) bid to sell three of its units in the past two years to pare debt were stymied because of valuation mismatches and bureaucratic red tape, calling into question the group’s ongoing efforts to dispose of some of its biggest assets to meet immediate payment obligations and avoid bankruptcy.

IL&FS is planning to sell a majority stake in its financial services unit, as well as assets totalling 4,500 crore, to trim debt after defaulting on several payments in the past two months.

Over the past two years, before the current liquidity crisis emerged, IL&FS has attempted to divest at least three units—IL&FS Financial Services (IFIN), IL&FS Transportation Networks Ltd (ITNL) and IL&FS Energy Development Co. Ltd (IEDCL).

The efforts, however, failed despite interest from prospective buyers, including a US private equity firm and Piramal Group.

Given its dismal track record, some experts now question the 14-member board’s ability to sell the stake in the financial services unit and whether it would be enough to steer IL&FS out of crisis.

“The board had seen this situation coming. Two years ago, we had recommended sale of IFIN, energy vertical and ITNL to address the debt situation immediately. In fact, we had also found a potential buyer in an American company that came forward... but that buyer retracted because of the deteriorating financial situation," an executive familiar with the development said on the condition of anonymity.

Another executive involved directly with the negotiations then blamed the reluctance of the government, which through Life Insurance Corp. of India’s (LIC) 25.34% ownership of IL&FS, did not approve the sale.

“Let us be clear. At least on one occasion, it was not just the board’s fault for not being able to sell the subsidiaries. The decision to sell eventually was beyond just the board’s," the second executive familiar with the development said on condition of anonymity. “One of the largest shareholders in the group, then did not agree for the sale."

Emails sent to IL&FS and LIC seeking comment went unanswered.

Mint on 21 September reported that IL&FS is planning to sell a majority stake in its financial services unit and additional assets worth 4,500 crore to cut debt.

Over the last three years, IL&FS’s total debt has jumped 44% to 91,091.3 crore at the end of March 2018 from 63,114 crore at the end of March 2015. The company’s listed entity, ITNL, now accounts for over a third of total debt, with the subsidiary’s net debt increasing 45% to 32,811 crore at the end of March 2018 from 22,575 crore at the end of March 2015. Mint could not independently ascertain the debt of the financial services business and its energy business.

Still, a few executives at IL&FS remain confident that more companies can be sold in addition to the financial arm.

“The proposal to sell these (IL&FS Financial Services, ITNL and IEDCL) firms remain. This has to be done on priority because if you do not, then you will lose people...they will go somewhere else," said the first executive cited earlier.

Vinayak Chatterjee, chairman of infrastructure services firm Feedback Ventures, blames the faulty public-private partnership (PPP) model for the troubles IL&FS is facing.

ALSO READ | How IL&FS default could impact Indian stock markets

“IL&FS was at the forefront of the PPP movement for almost two decades," Chatterjee said. “It was inevitable that it would be disproportionately affected by the non-functionality of PPPs. However, I believe that many of the so-called non-performing assets of IL&FS are the result of a financial definition and underlying are many valuable projects. The government only needs to find a fast-track mechanism to carve out the best assets and monetize them quickly."

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