Mumbai: IL&FS Financial Services (IFIN), the NBFC within the stressed Infrastructure Leasing and Financial Services (IL&FS), has gross non-performing asset of 90% of its loans as of December 2018.
The comparative figure for September 2018 was 61.8% and for March 2018 had been reported at 5.3%.
The figures were made public in a presentation made by N Sivaraman, COO, IL&FS group, to presspersons on Wednesday.
"The company which reported a GNPA of 5 per cent in March 2018. I have heard double digits NPAs but 90 per cent GNPAs is very unusual by any standards. That's the challenge that we have faced", Uday Kotak, the Chairman, said. To put this in perspective, the highest reported GNPA figures for a lender in recent times was has not crossed the 28% mark.
Of IFIN's total loan book of ₹18,805 crore, ₹10,656 crore is loans to third parties while ₹6849 crore is loans to group entities. While group entities are struggling to repay their debt themselves, even the external loans have been made to relatively weak clients, the company said. IFIN, as of March 2019, had cash reserves of ₹1010 crore.
The picture across the rest of the IL&FS group is just as bleak, which has total outstanding debt of ₹99,354 crore (as of September 2018). The high gearing within the group, with a consolidated debt-equity ratio of 10:1 and a huge asset-liability mismatch, limits the new management's ability to haul the company out of distress through raising equity or rearranging debt. The company has been granted a moratorium on debt repayments by the NCLAT.
While the group had reported networth of roughly ₹9000 crore at March 2018, "there could be significant erosion in net-worth over the last year, with some group entities even likely to have negative networth," Uday Kotak, Chairman of the board, said. The full picture will emerge only after FY19's accounts are finalised, he said, although at the aggregate level the networth is very low.
"The ₹9000 crore is before the adjustment which happened in the current year, which is subject to audits. It is reasonable to assume that there is significant errosion to net worth and in many many cases there could be a significant in negative value. There is significant risks of gaps coming out and we should be ready for that," Kotak said.
The difficulties at IL&FS are complicated by a holding structure where there are up to 4 layers between holding company and the operating subsidiaries.
The group is undertaking a series of asset monetization programmes to recover what it can and pay off debt. This includes the sale of its securities business, its renewable energy assets, its roads portfolio and its EPC capabilities. So far, binding bids have been received for the securities business and the renewable energy arm, the management said, although no buyer has been named. Bids for the roads, education and thermal power businesses are due to be received by April and May. The company said that the sale process has also been launched for overseas projects, such as IPTF Fujairah and Parkline Dubai while discussions are also on to sell the group's stakes in several joint venture projects, such as GIFT City, Mangalore SEZ and Paradip Refinery Water supply Ltd. However, the management gave no indication of how long the asset sale process will take to conclude or what the likely recovery will be. Some assets which are not viable may also be headed towards liquidation, the company said.
Meanwhile, the new management is also developing a liquidity management framework and has been able to drive down monthly operational costs by 28% between October 2018 and March 2019.
Kotak said: "We have come a long way in understanding the issues, putting forth a resolution process and we are working closely with the legal process."
On Monday, the Serious Fraud Investigation Office (SFIO) arrested Hari Sankaran, former managing director and vice-chairman of Infrastructure Leasing and Financial Services, in connection with ongoing investigations into defaults at IL&FS and its subsidiaries last year. Sankaran was produced in a special court in Mumbai, which remanded him to custody till 4 April.Sankaran abused his powers in granting loans to IL&FS subsidiaries, which were not credit-worthy or were declared as non-performing assets (NPAs), the SFIO said in a statement released after his arrest. His fraudulent conduct has resulted in wrongful losses to the company and its creditors, the statement added.
"We're working very closely with both the SFIO and ED (Enforcement Directorate)," Bijay Kumar, Deputy MD, IL&FS, said. "We're looking at audit impairment, gold plating, whether money has gone from IL &FS entities to individual pockets. We will come out with all this information and the investment agencies will initiate criminal action."
As of April 3, 2019, Vineet Nayyar, Executive Vice-chairman, IL&FS, was also made the MD, in place of CS Rajan, who will continue on the board.
Serial debt defaults at the parent company and its subsidiaries, which triggered a liquidity squeeze in the non-banking financial sector, had prompted the government to supersede the IL&FS board of the infrastructure lender on 1 October 2018. The Ministry of Corporate Affairs moved against Infrastructure Leasing & Financial Services (IL&FS) and its subsidiaries seeking a change of the board and management control of the company. It appointed Mr Uday Kotak as non-executive Chairman.