One of the points noted by the Serious Frauds Investigation Office (SFIO) report on IL&FS (Infrastructure Leasing and Financial Services) is the ever-greening of loans by its subsidiary IL&FS Financial Services Ltd (IFIN). But these are clearly not any old loans. Why would these companies come to IFIN for money? Clearly, because they were not getting bank credit anymore. And why would a cash-strapped IFIN lend to these select companies knowing fully well that they were in financial trouble and running out of funding options?
It is now clear that IL&FS has been in deep financial trouble for three years covered it up through short term borrowing and by hood-winking credit rating agencies. The obvious answer would be that these companies were very important for the group to maintain its contacts and connections.
Let us look at the list of such borrowers, listed by the interim report from the SFIO, under the ministry of corporate affairs (MCA). The report says, "...borrowers of IFIN, other than the group companies, were extended additional credit facility by the company so that they could service their outstanding, interest and principal repayment obligations and avoid defaulting and classifying the account as non-performing assets (NPA)."
During FY2015-16 to FY2017-18, IFIN provided loans worth Rs3,838.70 crore for ever greening.
Bankers tell us that most companies that got the benefit of this ever greening were either buddies of founder and former chairman Ravi Parthasarathy or politically connected people in states where IL&FS had large projects. One beneficiary company, SKIL was long headed by a close friend and neighbour of Ravi Parthasarathy. Ind Barath, to which the SFIO report draws specific attention also has promoters with reportedly close links to a Congress leader. Same is the case with promoters of Gayatri group.
Kohinoor Housing Development Pvt Ltd from the Kohinoor also received Rs120 crore as loan for two years (see the table above). This group is associated with Maharashtra's former chief minister Manohar Joshi. His son Umnesh and daughter-in-law Madhavi are the directors of Kohinoor Housing Development. The group had also acquired Kohinoor Mills, strategically located in front of the Shiv Sena headquarters at Dadar in Mumbai, with Raj Thackarey, founder of the MNS (Maharashtra Navanirman Sena) and nephew of Shiv Sena Founder Balasaheb Thackarey. Raj Thackarey later sold his stake to IL&FS and the project continues to languish and incomplete even today.
Earlier in 2005, IL&FS through its subsidiary Consolidated Toll Network India (CTNL) had acted as syndication agency for Rs421 crore deal with Kohinoor group. That time CTNL had tied up with Mr Joshi’s Kohinoor group and Raj Thackeray’s Matoshree Realtors. Incidentally, during that period, Umnesh and Raj Thackeray emerged as winner in the auction for the NTC’s Kohinoor Mill land at Dadar, says a report from Times of India
According to a report from the Mint
, ILFS India Realty Fund II, with a corpus of $895 million, was raised in 2007 and has invested in 28 portfolio companies including Kohinoor CTNL Infrastructure Company Ltd and GK Industrial Park Pvt Ltd.
During both FY2015-16 and FY2016-17, IFIN gave a loan of Rs271.60 each year to Earth Environment Management Services Pvt Ltd, a unit of A2Z group. During the same period, Abhitech Developers Pvt Ltd from the Shishir Bajaj group also received Rs225 crore each year from IFIN as loan.
Earth Environment Management Services, registered in Delhi was incorporated on 30 June 2104 and has Alok Kumar Gupta, Dalip Sharma, Manoj Tiwari, and Ajay Kumar Bajaj as directors. As per information from zaubacorp.com
, the company has given 28/142, Ground Floor, West Patel Nagar New Delhi Central Delhi DL 110008 as its registered address. The same address is shared by four other companies, Topcon Sokkia India Pvt Ltd, Avanirit Corporate Solutions Pvt Ltd, Digismart Education Services Pvt Ltd, and A2Z Green Waste Management Ltd, the record from the website shows.
SFIO says, "The ever greening of the loans resulted in inflated profits, suppressed provisioning and non-disclosure of possible NPAs in the books of IFIN. To this extent, the financial statements were misstated to show window dressed view or rosy picture of the financial statements. Further investigation into disbursal of these loans is underway."
Not only ever greening, the investigation by SFIO revealed write offs in past debt and supply of fresh loans to many companies. "There are instances where an account was written off in the books of IFIN as bad debt and fresh loans were advanced to the company or group despite the fact that the company had written off previous debts of the same borrower entity."
"This is observed in the case of credit facilities extended to Shiva group of companies. It is observed that Shiva group had been a defaulter in its loan commitments from 2011 itself. In November 2017, the Reserve Bank of India (RBI) has also made an observation for making of provisioning for said bad loans. In spite of such history of the borrower, IFIN extended another loan facility of Rs175 crore to Shiva Shelters & Construction Pvt Ltd and disbursed an amount of Rs50 crore in February 2018," the SFIO report says.
Coming back to the SFIO report, during its investigation, the agency found continuous fund raising by IFIN from the market, including debentures worth Rs3,900 crore and commercial papers worth Rs2,730 crore. In addition, IFIN also took bank loan of Rs8,500 crore and raised inter-corporate deposits of Rs980 crore. Overall, SFIO says, IFIN had sourced 75% of its funds from the public or banks.
"Investigation revealed that IFIN had advanced Rs1,630.05 crore to ITNL violating the prudential norms (credit concentration) for exposure to group companies framed by the RBI. In order to bypass these norms, the loans ultimately advanced to ITNL were layered through eight group companies of IL&FS," SFIO says. (Read: How IL&FS and its key subsidiaries financially crushed step down units)
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