Uday Kotak, chairman of Kotak Mahindra Bank Ltd., is heading the new IL&FS board that’s charting the group’s revival. Photographer: Simon Dawson/Bloomberg

IL&FS Board Invites Bids For Two Subsidiaries After IndusInd Deal Falls Through

Infrastructure Leasing & Financial Services Ltd. invited buyers to acquire stake in two of its subsidiaries as it kicked off asset-sale process to revive the debt-laden group.

The new government-appointed board, chaired by billionaire banker Uday Kotak, decided to open a public bidding process to solicit expressions of interest for IL&FS Securities Services Ltd. and ISSL Settlement & Transaction Services Ltd. which offer clearing services for equity and commodity derivatives, according to the company's press statement.

The board put the IL&FS units on the block after a deal with IndusInd Bank fell through. The private sector bank had signed a definitive agreement to acquire the subsidiary in July, but the transaction fell through after the financial crisis at IL&FS, according to a person with knowledge of the matter. IL&FS Securities Services had a revenue of Rs 324.5 crore and profit after tax of Rs 45 crore for the financial year ending March 2018. The transaction had valued the securities arm between Rs 350-450 crore, the person said.

The first leg of the stake sale will help the board put together a resolution plan for the IL&FS Group, based on market interest and price discovery for various assets, the statement said. The binding transaction and resolution plans will be subject to approval from the National Company Law Tribunal once the bids are finalised.

Fixing the IL&FS crisis is crucial for reviving confidence in the country’s debt markets especially when the economy is already grappling with rising global crude oil prices and a falling rupee. Defaults by IL&FS triggered a liquidity crunch for non-bank lenders.

Also read: Debt-Laden IL&FS Group Submits Revival Roadmap To NCLT

The IL&FS asset sale will be managed by Arpwood Capital and JM Financial—appointed as financial and transaction advisers—along with Alvarez & Marsal, the resolution consultant.

Prior to the stake sale announcement, on Oct. 31, the new board got a revival plan approved by the NCLT, which included resolution at the group, subsidiary and asset-levels. The conglomerate and its subsidiaries had defaults worth Rs 4,776 crore as of Oct. 8, including defaulted principal amounts and interest payments.

The government had superseded the IL&FS board on Oct. 1 after it defaulted on debt payments multiple times, sparking fears of a contagion in India’s financial markets. The new board found that the group with a debt of about Rs 91,000 crore, is far more complex than expected with a maze of 347 subsidiaries and associate companies. The Serious Fraud Investigation Office is also investigating IL&FS and its subsidiaries amid concerns of financial irregularities.

Also read: SEBI Chief Says Failure To Monitor End Use Of Funds Behind IL&FS Crisis

Troubles at the group had been intensifying since July, when founder Ravi Parthasarathy stepped down, citing health reasons. The defaults began in August, adding to pressure on corporate bond yields and sparking a selloff in the stock market. IL&FS’ investors include Life Insurance Corp., India’s largest life insurer; State Bank of India, its largest bank; and Housing Development Finance Corp, its largest mortgage lender. Japan’s Orix Corp. is the company’s second-largest shareholder.

Also read: The Roots of India’s Shadow-Bank Crisis