IL&FS
(Rs bn)
| 2017 | 2018 | |
| Total Assets | 201 | 247 |
Borrowings
| Term Loan | 28 | 25 |
| Debs | 80 | 97 |
| CP | 05 | 20 |
| ICDs | 05 | 14 |
| Total Borrowings | 118 | 156 |
IFIN
| Total Assets | 196 | 219 |
| PAT | 2088 | 997 |
Borrowings
| Term Loan | 91 | 113 |
| Short Term | 8 | 10 |
| CP | 16 | 35 |
| Total | 115 | 158 |
| Total borrowings of ILFS twins | 2017 | 2018 |
| 233 bn | 314 bn (around 34pct of Rs 910) |
Other Entities borrowings
| ITNL | Rs. 312 bn (34 % of total grp) |
| ILFS TN Power Project Ltd | Rs 82 bn (9% of total) |
| Channani Nashri Tunnel Projects | Rs. 44 bn |
| Others | Rs 56 bn |
Problems
ICRA, CARE and India Ratings downgraded the bonds, long-term loans and short-term commercial papers of Infrastructure Leasing & Financial Services (IL&FS) and its subsidiaries from early September 2018.
The long-term ratings of the parent entity IL&FS were downgraded multiple notches from AA+ to BB on September 8 and then to D on September 17. The short-term rating was downgraded from A1+ to A4 on September 8 and then to D on September 17. Similar rating actions were witnessed across debentures and/or CP of several other group entities – IL&FS Financial Services, IL&FS Tamil Nadu Power Company Limited, IL&FS Energy Development Company Limited, IL&FS Transportation Networks Ltd and IL&FS Education & Technology Services Ltd.
ILFS Group Borrowings Rs 910 bn.
Of which from banks Rs 570 bn (Total bank lending Rs. 79,000 bn)
Ie 0.7 percent of bank loans – even if 10% of loans are not recoverable, ie Rs 57 bn, would be written off- ie 0.07% of bank loans.
- NCDs issued by ILFS Group Rs 29 bn
- CPs issued by ILFS Group Rs. 8 bn (as per Kotak Committee Report)
This total would be the Exposure to AMCs ie. Rs. 37 bn
AUM of
Liq+Money Mkt Funds Rs 3355 bn
Debt Funds Rs. 7880
Total Rs. 11,235 bn
If 10% of the 29 bn Exposure to AMCs ie Rs 3 bn turn bad, it would amount to 0.08 % of aggregate Liq + Money Mkt Mutual Funds.
Problem
Ownership and Management structure put it at risk. – No clear owner – though it had a professional management – in built corporate governance risk. Poor Board oversight.
Infrastructure projects typically come with a number of risks:
- long and protracted implementation; litigations
- natural calamities or some other unforeseen contingencies; delayed/withheld regulatory approvals; escalation of costs well beyond the original estimates and the
- need for mobilising and servicing of additional debt;
- inadequate, or at any rate slow revenue/cash generation; and
- finally, often a change in the business environment that nobody ever anticipated.
Project cash flows are low or delayed, debt servicing cannot help being tardy. But even more importantly, there is a fundamental flaw in India’s funding of infrastructure, where the lion’s share of the financing is accounted for by commercial banks and some NBFCs. Now, project loans are typically long-duration exposures, while corpus of funds has an average maturity of no more than three years. India’s bond markets developed neither the depth nor the breadth to sustain financial ventures which need long-term support.
IL&FS transitioned from financing infrastructure to holistic project development – setting up a build and operate structure downstream.
Future
- Among its subsidiaries, ITNL accounts for around 70% of assets of the Group. Most of its customers are Govt entities. If NHAI pays up, major part of the problem would get resolved. Could swap their debt for long-term paper issued by the state-owned National Highway Authority (NHAI). These bonds would pay less, but for creditors such quasi-sovereign securities would be safer to hold than defaulted notes of a private borrower.
- Projects have been set up with defined cash flows. These can be monetised.
- Company by Company approach – each company has a bouquet of Liabilities – from banks, NCDs, CPs, ECBs. Some secured, some unsecured.
- A temporary moratorium on Repayments of CPs can be negotiated – would give time for the reconstituted Board to value the assets, bring up some for sale.
- A similar solution could be worked out for power, where assets of IL&FS Energy Development Co. could perhaps be given to the government-owned National Thermal Power Corp. to manage.
- A large hole in the financials of ITNL is on account of claims on NHAI – negotiations on early payment of these dues can be taken up and expedited. A Tripartite Restructuring of assets- liabilities between NHAI – ITNL-ILFS and banks can be worked out:
NHAI dues to ITNL can be structured as long term bonds – such restructuring of liabilities could be worked out further up the chain through IFIN and banks. The bonds could be progressively redeemed through toll payments from projects executed by ITNL.