IL&FS Mess: Dramatic Increase in Debt in the Past 2 Years
Moneylife Digital Team 05 October 2018
While responding to Rahul Gandhi’s allegations that more and more financial scams are coming out under the watch of the current regime, finance minister Arun Jaitley claimed that the problem of Infrastructure Leasing & Financial Services (IL&FS) is a creation of the Congress regime. 
 
However, the debt levels in IL&FS dramatically rose in the past two years when the Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA) has been in power. 
 
Its leverage rose by 59%, from 6.1 times in March 2016 to 9.7 times by March 2018, according to REDD Intelligence, which has pieced together the total picture of assets and liabilities of the group from publicly available information. REDD stands for Risk Event-Driven and Distressed. It is a leading provider of material intelligence on emerging market event-driven special situations. Moneylife has reviewed its research on IL&FS.
 
There are massive related party transactions and inter-corporate lending, which makes it very difficult to penetrate this behemoth. IL&FS’s exposure to associates through loans and receivables was Rs5,500 crore and another Rs600 crore were given as guarantees.
 
For the year ended March 2018, IL&FS reported a loss of Rs2,200 crore, eroding 22% of the company’s book value in just one year. It was so deep in trouble that even its interest cost at Rs7,920 crore was more than earnings before interest depreciation and taxes of Rs7,200 crore. 
 
On Monday, the government sacked six independent directors and appoint new directors on IL&FS board after it appeared that this massive institution had become a threat to the financial system when it started defaulting on its short-term debt obligations.
 
It has never been clear what are the total assets and liabilities camouflaged in the holding company, IL&FS, and hundreds of subsidiaries and associate companies. 
 
Indeed, even the government did not know how many entities there are in the group. In a press release issued on 1st October the ministry of finance said that IL&FS “has 169 group companies, as in 2017-2018, including subsidiaries, joint venture companies and associate entities.” 
 
Well, this figure is way off the mark. In a press conference on Thursday, Uday Kotak, the new chairman of IL&FS disclosed that there are 348 entities in the group.
 
There is so little information in public domain that despite its painstaking effort, even REDD did not have complete visibility about this sprawling hydra-headed conglomerate. According to REDD, IL&FS group has 175 subsidiaries and 66 associates – in all 242 entities – far more than 169 companies according to the ministry of finance but far less than what the Mr Kotak revealed. 
 
According to REDD, the group holds assets of around Rs1,65,000 crore. The corresponding total liabilities is around Rs1,32,000 crore. The reported consolidated liabilities at IL&FS (holding company), is around Rs1,06,500 crore and inter-group liabilities is around Rs25,500 crore. Similarly, inter-group assets comes around Rs49,000 crore, indicating an equity of Rs23,500 among the group companies.
 
According to the data compiled by REDD, IL&FS has total assets of over Rs1,00,000 crore in its operating subsidiaries. Of this, around Rs25,000 crore is in financial assets and the remaining is in non-financial assets, spread across energy, road, international, maritime, rail, township, educational and other assets.
 
In a report dated 27th September, REDD states that the consolidated debt on the IL&FS books stands at around Rs91,080 crore. Out of this Rs68,070 crore is secured and remaining Rs23,024 crore is unsecured. Total loans, which are secured against the cash flows of the company, is around Rs40,000 crore.
 
The IL&FS story started unravelling after Moneylife first wrote about its default to SIDBI. (Read: IL&FS defaults on Rs1,000 Crore Short-term Loan from SIDBI?)
 
Despite running scores of different projects and businesses, IL&FS has reported a loss or meagre profit over the past three years for which data is available.
 
Over the past 10 days, many of these victims have begun to speak out, especially after the gold-plating of the GIFT City project was exposed by Moneylife.
 
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Comments
arun k Dasgupta
6 years ago
ILFS mess was created over a period with the support and connivance of
so called eminent board members
and the auditors/CA firms. Let there
be a forensic audit and the role of both internal/ nominee/
independent directors and the audit
firms be critically examined because
it is very much possible that these

people decided to look aside and their silence/ approvals were
purchased at a cost. The truth should come before the nation as these
tainted directors are spreading their tentacles in many other companies
and are playing with the public trust.
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