IL&FS asset sale plan hangs in the balance

Mumbai: The government’s move to supersede the board of Infrastructure Leasing and Financial Services Ltd (IL&FS) and order a probe has clouded the view as to when the debt-laden lender would be able to proceed with its capital-raising, restructuring and asset monetization plans. With the Serious Fraud Investigation Office now launching a probe into suspected irregularities, there is a likelihood that the entire process will be delayed till at least March.

A lot will also depend on the decisions the newly reconstituted board takes during its first meeting, including whether to retain SBI Capital Markets Ltd as the investment banker, accept the valuation of assets and continue negotiations with buyers.

The government’s suspicion that there was misreporting in financial statements adds to the uncertainty. Its press release on Monday stated: “The consolidated financial statement of IL&FS holding company and its subsidiaries, associates 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 crores... The high debt stress was clearly visible in the company and its main subsidiaries for the last so many years, but was camouflaged by misrepresentation of facts.”

This will necessarily require a re-evaluation of the assets and liabilities, following which renewed bids would be invited for liquidation. The asset monetization plan has been in the works since the beginning of August, two people directly aware of the development said, requesting anonymity. Several potential suitors, who were in discussions with the previous board, have been seeking clarity after the board was superseded, they said.

IL&FS had already received concrete offers for several of its assets, which include road projects housed under group subsidiary IL&FS Transportation Networks Ltd, land parcels held under its various companies and the company’s wastewater treatment facility at Tirupur, the people said.

Mint had reported on 31 August that IL&FS was in talks to raise $2 billion from the sale of its assets, with several interested bidders, including I Squared Capital, US-based stressed asset specialist Lone Star Funds and National Infrastructure Investment Fund.

“Some of them are looking at our assets, some are in the process of doing due diligence and we’ve received binding offers for 14 assets. We will close these transactions within the next quarter,” K. Ramchand, chief executive of IL&FS Transportation said then.

“However in the light of current events, it remains to be seen how the new board proceeds with the discussions and as of now meetings related to asset sales have been indefinitely postponed and we are waiting for fresh dates,” said the first person, a managing director with a foreign infrastructure fund that has been engaged in negotiations with IL&FS. “There is a high probability that the talks may have to begin afresh and current process may stand nullified.”

“While the asset sale discussions are not entirely new and IL&FS has been in talks with potential buyers in the past few years to deleverage its balance sheet, the current spell of discussions were indeed a concerted effort to raise urgent cash and the buyers have been hopeful of closing deals faster this time” said the second person.

Over the past few years, IL&FS has divested specific assets and full business verticals to shore up liquidity. In July, IL&FS sold IL&FS Securities Services Ltd to IndusInd Bank Ltd. In March, IL&FS Energy Development Co. Ltd divested 49% stake in its renewable energy business to Japan’s Orix Corp. for ₹ 132 crore.

IL&FS Engineering and Construction Co. Ltd is also in discussions with Saudi Binladin Group (SBG) to raise capital to address the long-term working capital, though it’s not clear whether it will be through equity or debt. Similarly, Hill County Properties Ltd, formerly known as Maytas Properties, is in talks with buyers to sell land. Mint reported on 28 September, citing people aware of the matter, that Aditya Birla Group is in talks with IL&FS to buy out its education and training arm, IL&FS Education and Technology Services.