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The Capitalist | A financial giant’s size and clout

The Capitalist | A financial giant’s size and clout

The recent exposure of Satyam Computer Services Ltd and Maytas Infra Ltd have provided a glimpse into the size and clout of Infrastructure Leasing and Financial Services Ltd (IL&FS). It has invested in and lent to both Satyam and Maytas.

Also See Investment Kitty (Graphics)

But such investments and loans are difficult to track, primarily because IL&FS makes such investments through one of its subsidiaries—the publicly listed IL&FS Investment Managers Ltd (IIML)—which in turn invests in projects where it funds real estate acquisitions in partnership with some other party.

Also Read RN Bhaskar’s earlier columns

For instance, IIML has invested $100 million in Bangalore-based QVC Realty Pvt. Ltd and retains significant management control over the company. QVC in turn has invested in projects floated by the north India-based realtor Uppal Group by entering into a 50:50 joint venture agreement. Similarly, IIML has another joint venture with the Milestone Group where investments of around Rs1,000 crore have been chalked out.

In January this year, IL&FS opened a London office to tap European channels of financing. It was disclosed there that the firm was handling projects worth $40 billion, developed along public-private partnership formats and straddling transportation, power, maritime, water, urban infrastructure, environment, education and community development. The financial services business of the group includes investment banking, investment management, trusteeship services, transportation solutions, custodial and depository services.

In another presentation, IL&FS stated that it currently manages at least $2 billion of private equity funds and that $557 million has already been deployed in 19 real estate transactions, of which Mumbai accounts for 32%, the National Capital Region 19%, Bangalore 8% and Pune 7%.

IIML expects its fund-based investments to continue increasing and believes that it will cross the $20 billion mark by the end of next year. That would give it the size and clout of most international funds. However, it remains to be seen if the current meltdown and the softening of property prices will slow down IL&FS, or whether it, too, will have to provide data about its investments on a mark-to-market basis.

Curiouser and curiouser

The case of Satyam Computer Systems Ltdand Maytas Infra Ltdbecomes curiouser and curiouser.

It took the Central Bureau of Investigation almost three months to arrive at the conclusion that money had been diverted out of Satyam and the agency had to justify its charges through a mind-boggling 65,000-page report. Was the report kept that voluminous to slow down the process of trial and conviction?

That is not the only oddity. Tech Mahindra Ltdis on the verge of taking over Satyam. But the saga at the fraud-hit company remains probably the only one of its kind in corporate history where bidders are invited to bid for a company whose accounts have not been finalized and liabilities remain unquantified.

Satyam faces class action suits in the US where damages are known to be harsh, especially if wilful fraud is proved.

Then there is the surprising silence and inaction on seizing properties of companies and individuals (Maytas Infra and Maytas Properties Ltd) which are believed to be recipients of funds diverted from Satyam.

Nobody talks about this any more, neither the government-appointed directors on Satyam nor its shareholders who have lost a great deal. There has been no sealing of assets and no announcement of auctions to remedy wrongs done to a class of investors.

Diamond and dust

Almost 15 years ago, the Indian government gave a prospecting licence to the De Beers Group to identify diamond mines in Madhya Pradesh. Very little came of it. And if one has to go by the track record of De Beers, which once controlled almost 90% of the supply of rough diamonds in the world, it has constantly sought to suppress sources of supply, so that there is a perceived shortage of diamonds in the market.

Now that the prices of diamonds have come crashing down, another mining conglomerate that was finally permitted by the government to prospect for diamonds— Rio Tinto—has finally struck pay dirt in Madhya Pradesh.

It is not known when commercial exploitation of the diamond mines will start given the lacklustre conditions in the diamond market.

It also speaks volumes about the way De Beers clings on to prospecting licences.

Graphics by Ahmed Raza Khan / Mint

R.N. Bhaskar runs a company with significant interests in distance learning and examination certification and writes on corporate and business policy issues. Comments on this column are welcome at capitalist@livemint.com

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