IL&FS Seeks Shareholder Approval to Sell Equity and Assets

(Bloomberg) -- India’s troubled shadow bank Infrastructure Leasing & Financial Services Ltd., whose recent debt defaults sparked concern about contagion in the nation’s financial markets, has sought shareholder’s approval for a plan to revive the firm at the company’s annual general meeting on Saturday.

The management aims to bring the group back to normalcy by selling shares through a rights issue, paring assets to raise funds and by getting new credit lines to repay debt due soon, Hari Sankaran, managing director of IL&FS said in a statement after the meeting. Sankaran didn’t provide any further details of the plan.

The beleaguered group can raise 600 billion rupees ($8.3 billion) by selling assets, according to Chairman of its biggest shareholder and nation’s largest state life insurer, Life Insurance Corp. Rights offerings are often made by companies that need cash to meet upcoming obligations, and give existing shareholders the right to buy new shares.

IL&FS funds infrastructure projects across the world’s fastest-growing major economy and is considered to be systemically important by the central bank. Its defaults on commercial paper once considered rock-solid from August sparked concern among households holding mutual funds invested in such debt, and forced banks, mutual and pension fund managers to brace for further losses.

The fear added to pressures on borrowing costs for all companies in India’s credit markets, led to a slump in corporate bond issuance and sparked a brief but sharp sell-off in the stock market. There was also anguish that the group’s troubles could spread to other shadow banks and crimp Prime Minister Narendra Modi’s infrastructure plans before elections next year.

Investors in IL&FS also include Japan’s ORIX Corp., the second-largest shareholder in the company, and Housing Development Finance Corp.

LIC Chairman V.K. Sharma on Friday said that the insurer is open to subscribing to the lender’s rights offer. Separately, Reserve Bank of India officials on Friday met the top shareholders of IL&FS in Mumbai to assess a debt resolution plan for the stressed company.

The company has already received satisfactory offers for 14 out of the 25 assets put on the block, according to an internal memo seen by Bloomberg.

IL&FS has felt the pain from interest rates that have soared to multi-year highs for short-term borrowings. On top of that, some of IL&FS’s own construction projects including roads and ports have faced cost overruns amid delays in land acquisition and approvals. Disputes over contracts have locked about 90 billion rupees of payments due from the government.

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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