Infrastructure Leasing and Financial Services (IL&FS) believes the group has only 22 fully-solvent entities, which can pay off their combined debt of ₹6,605 crore, according to an asset solvency test that its new management had commissioned.
However, this figure accounts for only 7% of the group’s estimated debt of ₹89,393 crore of 173 Indian subsidiaries. It also does not include the debt on the books of foreign subsidiaries and debt of domestic subsidiaries where IL&FS has no controlling interest.
The internal assessment shows that entities that hold ₹15,475 crore (18% of the total debt) cannot fully repay even senior secured financial debt, while the entities holding the remaining ₹67,313 crore (75%) can only partly meet obligations of operational and unsecured financial creditors.
This essentially means that the IL&FS board wants lenders to continue offering debt repayment moratorium on the bulk of debt-laden group’s assets.
The insolvent loans amounting to ₹15,475 crore will be allowed a full moratorium and will need to be written off by the lenders while on the remaining ₹67,313 crore, the operating and maintenance expenses will continue to be met while the remaining will be placed in escrow.
However, in partial relief to the banks, the ministry of corporate affairs has suggested that banks may be allowed to defer provisioning on these outstanding loans.
Mint has reviewed a copy of this document, which was submitted to the National Company Law Appellate Tribunal (NCLAT) in Delhi on Monday.
The fully-solvent entities include only two road projects, one of the North Karnataka Expressway Ltd (NKEL) and the other of Jharkhand Infrastructure Implementation Co. Ltd, which are among the group’s 19 operational roads portfolio. The other solvent entities are eight renewable energy special purpose vehicles (SPVs), six from the fund management business and a handful from the securities, real estate and water supply projects.
The solvency test was conducted to decide which solvent assets would continue servicing debt while which could be temporarily exempted from the payment obligations until the asset sales are completed. The solvent entities were identified on the basis of a 12-month look-ahead cash flow and would estimate if the assets are likely to generate sufficient cash to meet all operational and financial commitments.
The document assures senior lenders that they will continue to be paid from the cash generated from operating solvent assets. This will soothe secured lenders to at least operational assets who had been earlier informed by IL&FS that debt repayments would be temporarily suspended.
In a report released on 16 January, credit ratings agency India Ratings had warned that if IL&FS were to stop repayments on debt, it could set a dangerous precedent for troubled infrastructure companies and the model of debt financing in the future.
The NCLAT bench has reserved its final order on the validity of this payment protocol for Monday, 11 February. IL&FS and its group companies had been classified into three categories—green, amber and red—based on the individual entity’s network and cash flows and its ability to repay secured and unsecured lenders, Uday Kotak said in a meeting held on 22 January with IL&FS board of directors and Injeti Srinivas, secretary, ministry of corporate affairs.