IL&FS Group Resolves 18% Of Total Debt Since Liquidity Crisis In 2018
IL&FS group had debt of more than Rs 99,000 crore before it was superseded by a government-appointed board in October 2018.
The IL&FS Group—the infrastructure builder and financier whose payment defaults in September 2018 triggered a liquidity crisis, leading to its takeover by the government—has resolved 18% of the total debt to date.
As of June 2020, its new board, headed by veteran banker Uday Kotak, resolved debts worth Rs 17,640 crore belonging to various group entities by way asset sales, insolvency proceedings, debt restructuring and monetisation strategies, according to a company presentation. The group also plans to address more than Rs 57,000 crore worth of debt, with Rs 50,500 crore likely to be pared by March next year.
The group had debt worth more than Rs 99,000 crore before it was superseded by a government-appointed board in October 2018 following issues of mismanagement that threatened a contagion in the credit market. The new board identified 302 subsidiaries, associate companies, joint ventures and other entities related to the IL&FS Group. The companies were classified into three categories—green (units that service debt completely from their cash flows), amber (units that service debt partially) and red (units that cannot service debt).
Recovery Strategy
The new board has so far sold 11 group entities, resolving debt worth Rs 4,821 crore. Further, Rs 1,208 crore and Rs 1,605 crore worth of debt payments belonging to “green” and “non-green” entities have been made, the company said.
The company has a resolution strategy for 172 domestic entities with a cumulative debt worth 94,300 crore, said CS Rajan, managing director of IL&FS Group. Of these, sale of 15 entities with debt more than Rs 8,500 crore is at advanced stages of resolution.
The group has also received claims settlements worth Rs 200 crore from various government bodies, besides the National Highways Authority of India’s in-principal approval to a claim worth over Rs 2,000 crore, Rajan said.
The expected recovery value, the company said, is more than 57% of the group’s total debt, which is significantly higher than the average realisation for financial creditors under the Insolvency and Bankruptcy Code process.
What remains unresolved after the resolution period, Rajan said, represents the haircut required to be taken by secured and unsecured lenders.
“For the resolution of the six holding companies with over Rs 50,000 crore of debt, we are yet to work out the granular process. But it will be resolved through the cash flows from the resolution of underlying operating companies,” Rajan said.
The group aims to monetise 13 road assets with over Rs 9,000-crore debt through infrastructure investment trusts, he said. Adding that, “we are expecting the in-principal approval from SEBI and hope to receive exemptions we have sought.”
Resolution Timeline
While it has been nearly two years since the new board took over the beleaguered infrastructure group, it was only in March this year that it received approval from the National Company Law Appellate Tribunal for its group-resolution framework.
“The resolution framework was only approved in March 2020, so a lot of ground work had to be finalised in view of this framework. This is the first of its kind group level resolution and accordingly the new timeline has been made, subject to regulatory or litigation issues,” said Bijay Kumar, deputy managing director of IL&FS Group.
The Covid-19 pandemic added a new dimension of risk to group’s resolution process.
“The Covid-19-led lockdown has impacted our ability to conclude timelines. It has impacted the sale of real estate assets and there could be impact on valuations,” said Uday Kotak, non-executive chairman of IL&FS Group. “The recoveries in IL&FS Financial Service Ltd. have also been delayed because of this.”
Low Recoveries In IFIN Loans
The resolution process has been challenging for IL&FS Group’s non-banking arm, which had 90% of its loan book turn bad as of April 2019, Kotak said.
“There have been zero recoveries for large loans given to group companies, which themselves are under the IBC process,” he said. “IFIN loan recoveries are turning out to be one of the most difficult aspects and we as the new board cannot understand the logic or prudence under which these loans were given.”
According to Kaushik Modak, who now heads the operating committee of IFIN, half of the lenders’ exposure in terms of loans and investments is to internal group entities and the other half to external entities. “We have filed several cases 123 in the NCLT (National Company Law Tribunal) for recoveries of money, of which 23 cases are under the IBC against borrowers, borrower group and promoters,” he said.
So far, the board of IL&FS has managed to recover Rs 1,360 crore from loans and investments made by IFIN in non-IL&FS Group entities.