(Source: IL&FS Annual Report)

RBI Asks Shareholders To Rescue IL&FS

The Reserve Bank of India on Friday asked shareholders of Infrastructure Leasing & Financial Services Ltd. to arrest debt defaults, according to a person present at the meeting called by the central bank.

The banking regulator met the three large investors of IL&FS to discuss the large-scale defaults and a sharp downgrade in ratings of the infrastructure finance company. These included Life Insurance Corporation of India, Japan’s Orix Corporation and Abu Dhabi Investment Authority.

While the RBI had originally invited all shareholders to attend the meeting last week, it later changed the brief and called only the top investors. LIC holds 25.34 percent in IL&FS, Orix Corp owns 23.54 percent and Abu Dhabi Investment Authority has a 12.56 percent stake.

The meeting was convened after the RBI initiated a special audit on the company as it defaulted on repaying about Rs 450 crore worth of inter-corporate deposits to Small Industries Development Bank of India. Over the last month, the company and its subsidiaries have reported multiple defaults on repayment obligations.

The group’s non-banking finance arm, IL&FS Financial Services Ltd., on Thursday informed stock exchanges that it defaulted on a Rs 52.4-crore repayment of short-term deposits and Rs 104-crore term deposit. It also didn’t repay loans due to five lenders.

In August, ICRA downgraded the long-term rating on Rs 4,475 crore worth of IL&FS debt securities from AAA to AA+ citing elevated debt levels because of funding commitments towards group ventures. The standalone gearing—or long-term debt-to-equity ratio—of IL&FS rose to 3.08 times as of March compared with 2.60 times a year ago.

Also read: IL&FS Jumps by Record in Dim Sum Bond Market on Hope of Support

The infrastructure financier is slated to meet on Saturday for its annual general meeting to seek, among other things, approval to raise funds. The agenda, according to the company website, includes:

  • Approve audited balance sheet and audited consolidated financial statement for the year 2017-18.
  • Re-appointment of Hari Sankaran, PK Modi, Harukazu Yamaguchi and Kiyoshi Fushitani as nominee directors of the company.
  • To seek approval to raise secured and/or unsecured, listed and/or unlisted non-convertible debentures and/or subordinated debt instruments and/or other securities for an aggregate value of up to Rs 15,000 crore.
  • To seek approval to raise borrowing limits from Rs 25,000 crore to Rs 35,000 crore.
  • To seek approval to raise authorisation capital of the company from Rs 1,500 crore to Rs 1,600 crore and make necessary amendments to the Memorandum of Association and Articles of Association. The company proposes to increase the paid-up equity shares from 40 crore shares to 50.45 crore shares.

The company plans to raise up to Rs 4,500 crore through a rights issue. It’s also seeking up to Rs 3,500 crore in loans from the State Bank of India, also its shareholder, and LIC.

Also read: The IL&FS Rescue Act: Who’s In? Who’s Out?

LIC Chairman VK Sharma, on the sidelines of a separate meeting with the Finance Ministry today, said the life insurer was not ruling out the option of participating in the rights issue or infusing further capital in IL&FS. It would, however, need the insurance regulator’s approval to raise its stake to more than 25 percent in IL&FS, he said.

SBI, Central Bank of India and Housing Development Finance Corporation Ltd. are unlikely to participate in the rights issue. SBI is also unlikely to grant loans, unless the company provides a detailed resolution plan, BloombergQuint reported on Friday.