The Infrastructure Leasing & Financial Services Ltd (IL&FS) group, which has defaulted on several short-term obligations, raising a scare of contagion across the financial and real economy, may force its lenders to write off Rs30,000 crore of their loans, according to numbers crunched by REDD Intelligence
from publicly available information.
Risk Event-Driven and Distressed Intelligence (REDD) is a leading provider of material intelligence on emerging market event-driven special situations.
As is now known, the threat of such a contagion has forced the central government on 1st October to remove the board of directors, which was responsible, along with the top management, in bringing the institution to the brink of disaster.
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.
REDD estimates that, owing to the second lien nature of these secured loans at IL&FS and IL&FS Transportation Networks Ltd, “recovery would be constrained by the quality of collaterals,” which includes equity pledged by operating subsidiaries.
Further, the loan at IL&FS Tamil Nadu Power, which was supposed to run a 1200MW power project, is also at risk, as it has been taken into insolvency process by bank lenders.
In all, the report estimates that, loans amounting to at least Rs30,000 crore are at risk, including the loan at IL&FS Tamil Nadu Power.
IL&FS, estimates REDD Intelligence, in its entirety holds assets of around Rs1,65,000 crore, across holding company, 175 subsidiaries and 66 joint ventures and associates. And the corresponding total liabilities stand at around Rs1,32,000 crore. The reported consolidated liabilities at IL&FS (holding company), stands at around Rs1,06,500 crore and inter-group liabilities is around Rs25,500 crore.
Similarly, inter-group assets aggregate around Rs49,000 crore, indicating an equity of Rs23,500 among the group companies.
IL&FS has reported total assets of over Rs1,00,000 crore in its operating subsidiaries. REDD Intelligence estimates that out this amount, around Rs25,000 crore are in financial assets and the remaining are in non-financial assets, spread across energy, road, international, maritime, rail, township, educational and other assets.
IL&FS, the brainchild of ex-Citibanker Ravi Parthasarathy, had ambitious plans to finance mega infrastructure projects and become a complete financial services company.
Incorporated in 1987, IL&FS was initially promoted by the Central Bank of India (CBI), Housing Development Finance Corp Ltd (HDFC) and Unit Trust of India (UTI). Others, such as State Bank of India (SBI), Life Insurance Corporation (LIC) of India, ORIX Corp of Japan, and Abu Dhabi Investment Authority (ADIA) invested in the 1990s, while many of the original shareholders, like UTI, diluted their holding.
In 1999, UTI had once asked for a three-member supervisory board to head IL&FS’s management; but after its own debacle, it sold out most of its equity. LIC now has a 25% shareholding, making it yet another company where the insurance giant has a high exposure risk.
What makes the unravelling of IL&FS extremely complex is that each of its subsidiaries also has a large investment from public sector banks and institutions.
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. In the next few days, Moneylife intends to reveal some of these inside stories.
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