Mumbai/New Delhi: Housing Development Finance Corp. (HDFC)’s nominee director abruptly stepped down from the board of Infrastructure Leasing and Financial Services Ltd (IL&FS) in September 2017. In July, Life Insurance Corp. of India (LIC), IL&FS’s biggest shareholder, withdrew from a panel mandated to take the company public, without giving any reason. The series of events over the past year, in which IL&FS’s most influential shareholders have washed their hands of the now crisis-hit company, may indicate that they were aware of its sharply deteriorating financials.

State-owned LIC owns 25.34% and HDFC owns 9.02% in IL&FS.

Surprisingly, HDFC has not nominated a director to the board of IL&FS since Harish Engineer, the mortgage lender’s nominee director, quit last year.

LIC decided not to be part of an initial public offering (IPO) committee, which was reconstituted on 21 July after IL&FS chairman Ravi Parthasarathy resigned. This, despite the fact that LIC, along with another institutional shareholder, Bay Capital, was part of the IPO panel when it was first formed in December 2014.

“I cannot answer why LIC was not part of the reconstituted panel, but then it should be no surprise that it was very clear by then (when the committee was reconstituted in July 2018) that IL&FS had clearly dumped all plans of going public," said an executive directly familiar with the developments.

An email sent to HDFC, LIC and Bay Capital seeking comment went unanswered.

The two events, according to corporate governance experts, indicate that shareholders of IL&FS were aware of the impending financial challenges.

“It is difficult to believe that many of the board members could not have seen that IL&FS is headed for trouble because of the issues related to the PPP (public-private partnership) model followed by the group," said Shriram Subramanian, founder of proxy firm InGovern Research.

Significantly, both LIC and HDFC are still undecided whether they will invest additional money to bail out IL&FS. A decision on fresh infusion of equity would be taken at a board meeting on 29 September.

On Tuesday, LIC chairman V.K. Sharma, after a meeting at the finance ministry, told reporters that all efforts were being made to keep IL&FS afloat. “We will ensure IL&FS does not collapse. We will not allow contagion to spread from IL&FS... All options are open (including raising stake in the company)," said Sharma.

“An IPO Committee was constituted on December 9, 2014 for working out a strategy for initial public offer of the company. The committee comprised of Mr Ravi Parthasarathy, chairman, Mr Hari Sankaran, Mr Arun K Saha, Mr Sanjeev Doshi, Mr Vibhav Kapoor, representatives of institutional shareholders viz: LIC and Bay Capital," said IL&FS’s 2018 annual report.

“Consequent to the resignation of Mr Ravi Parthasarathy with effect from July 21, 2018, the committee was reconstituted. The current composition of the committee includes Mr Hari Sankaran, chairman, Mr Sanjeev Doshi, Mr PK Molri, Mr Arun K Saha, and Mr Vibhav Kapoor."

It is not clear if Bay Capital continues to remain invested in IL&FS, as the company’s shareholding pattern for the quarter ended March does not name Bay Capital as an institutional shareholder. As per IL&FS’s ownership details, Bay Capital Investment Managers Pvt. Ltd last held a 0.27% stake in the group until January 2015.

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