IL&FS AGM: Three-Pronged Strategy To Return To Solvency

Infrastructure Leasing & Financial Services Ltd. reiterated that it will raise funds from shareholders and offload assets as part of its plan to return to solvency after a string of defaults. It would also pursue a moratorium under the Companies Act to come up with a restructuring plan that works for both creditors and shareholders.

The first part will be to complete the rights issue and enable the company to re-capitalise itself, Vice Chairman and Managing Director Hari Sankaran said in a video shared by the company after its annual general meeting in Mumbai. It plans to raise up to Rs 4,500 crore through a rights issue.

The second part will be to “sell assets built over the last few decades to ensure value can be upstreamed and used to repay creditors”, while the third part will be to get “liquid allocation to support repayment of debtors till our assets sales begin”, he added.

Defaults by the infrastructure company and its subsidiaries, with a debt of about Rs 90,000 crore, have triggered fears of a contagion. The Reserve Bank of India on Friday asked its large shareholders, including Life Insurance Corporation of India, Japan’s Orix Corporation and Abu Dhabi Investment Authority, to arrest the defaults.

Two shareholders who attended today’s AGM told BloombergQuint requesting anonymity that a few of the larger shareholders had committed to subscribe to the rights issue. However, BloombergQuint could not independently confirm that. A senior SBI official said requesting anonymity that the bank had not made any commitment yet to participate in the rights issue.

LIC Chairman VK Sharma had said on Friday that 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, he said.

Orix Corp had also agreed to subscribe to the issue, PTI reported citing announcement at the AGM. The infrastructure financier hopes to complete the issue by the end of October.

Besides the rights issue, IL&FS today told shareholders that it’s considering asset monetisation, short-term bridge financing through cash infusion and also plans to seek a moratorium from creditors, according to the two people quoted earlier. The sale of assets will depend on the legal process, and it will take another 45 days to work out that framework, they said.

IL&FS’ board also met today to discuss the future course of action. In the meeting, it took four key decisions, Hari Sankaran said in a separate video statement. These are:

• The board will develop a comprehensive restructuring plan to demonstrate to creditors and shareholders that the intrinsic value of the group is sufficient in repaying its liabilities.
• It agreed to appoint a specialist agency to take this plan forward. They will develop the plan, seek approval from the board and stakeholders and then proceed to implement it. IL&FS has appointed Alvarez and Marsal to implement its turnaround plan.
• The board will continue to pursue its application under Section 230 of the Companies Act to ensure that the firm has the moratorium to detail out this plan and satisfy the creditors and the shareholders with its capacity to service debt and equity.
• To actually implement the asset-monetisation plan in a manner which is consistent with the comprehensive restructuring plan