Road construction takes place near the IL&FS building, in Mumbai, India. (Photographer: Abhijit Bhatlekar/Bloomberg News)

Indian Defaulter IL&FS Said to Seek $4.2 Billion in Asset Sales

(Bloomberg) -- Infrastructure Leasing & Financial Services Ltd., an Indian conglomerate that has missed payment on more than five of its obligations since August, is seeking to raise more than 300 billion rupees ($4.2 billion) selling assets to cut debt, according to an internal memo seen by Bloomberg.

The company, which has been categorized as a “systemically important” non-banking financial firm by the Reserve Bank of India, plans to sell 25 assets and has received investor interest for 14 of them, according to the note sent to employees by Vice Chairman and Managing Director Hari Sankaran. The company is satisfied with the valuation of the offers, Sankaran said. IL&FS didn’t respond to an email seeking comment on the note.

Investors are concerned that defaults by IL&FS, which has total debt of $12.6 billion -- 61 percent in the form of loans from financial institutions -- could spread to other shadow banks in Asia’s third-largest economy. The firm, which helped fund India’s longest highway tunnel, hasn’t been able to pay more than 4.9 billion rupees ($68 million) of its obligations this year and has additional dues of about 2.2 billion rupees to be repaid by end of October, according to data compiled by Bloomberg.

“Investors are wary about the credit issues,” said Rajesh Cheruvu, chief investment officer at WGC Wealth Management Ltd. “Few of IL&FS bonds are maturing over the next few weeks, market participants are nervous over it.”

The company’s shareholders will meet on Sept. 29 to vote on increasing the authorized share capital of IL&FS to 45 billion rupees, which "will be the starting point for the implementation of a plan to restore normalcy,” according to the IL&FS note to employees.

The Reserve Bank of India has called for a meeting with shareholders of Infrastructure Leasing & Financial Services on Sept. 28, to focus on the recent set of defaults, Bloomberg Quint reported on Sunday, citing two bankers with direct knowledge of the matter.

Separately, a unit of IL&FS re-designated its Chief Financial Officer Dilip Bhatia’s role and asked him to focus on selling assets, IL&FS Transportation Networks Ltd. said in a filing on Saturday. IL&FS Transportation manages 28 road and five other non-road projects, according to its annual report.

“Investors are awaiting concrete announcements on the sale of assets and infusion of liquidity from shareholders,” said Mahendra Jajoo, head of fixed income at Mirae Asset Global Investment in Mumbai.

IL&FS, which reported revenue of $2.6 billion in the year ended March 31, said in a statement that it couldn’t make interest payments due Friday on three non-convertible notes. The amounts due totaled about 376.4 million rupees, according to data compiled by Bloomberg.

Investor concerns about contagion spreading from the beleaguered company intensified last week. India’s benchmark stock index S&P BSE Sensex on Friday swung from a 1 percent gain to a decline of as much as 3 percent -- its wildest intraday move in more than four years -- before closing with a 0.8 percent loss. Dewan Housing Finance Corp. tumbled 43 percent, while Indiabulls Real Estate Ltd. dropped 13 percent. The reason: DSP Mutual Fund sold Dewan Housing’s debt at a discount earlier in the week.

IL&FS and its units are also losing its top executives. Five directors of its units IL&FS Financial Services Ltd. including its Managing Director Ramesh Bawa resigned, according to people familiar with the matter. Bawa’s resignation was announced by the company in a filing on Friday.

IL&FS first defaulted on commercial paper, then on short-term borrowings known as inter-corporate deposits. It has also failed to pay 4.5 billion rupees in ICDs to government-backed lender Small Industries Development Bank of India, people familiar with the matter said earlier this month.

IL&FS’s outstanding debentures and commercial paper accounted for 1 percent and 2 percent, respectively, of India’s domestic corporate debt market as of March 31, according to Moody’s Investor Services. Its bank loans made up about 0.5 percent to 0.7 percent of banking system loans, Moody’s said.

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