The reconstituted board of IL&FS with banker Uday Kotak as non-executive chairman and Vineet Nayyar as vice-chairman, met on Tuesday to take stock of a year at the helm. Even as Kotak’s term was extended by an year, the board made a presentation to the media that over 35% of the external borrowings of infrastructure company was nearing resolution. IL&FS, which defaulted first in September last year, owes in excess of ₹94,000 crore to an assortment of lenders.
As we all know by now, the previous management headed by a reclusive Ravi Parthasarathy, had created a myriad and complex structure of 302 entities (169 domestic and 133 international) and a presence across 11 countries. It had multiple stake holders – government companies, state governments, Indian private players and foreign partners – all of which only added to the difficulty in resolving the issues.
In a year after its constitution, the new board has held 25 board meetings, each lasting from 9 am to 6 pm, to review the status and take decisions. The board said that the wage bill of the company has been reduced by 45% over the year and there is now ₹5,300 crore lying in an escrow account to pay lenders, and loans amounting to ₹1,200 crore have been recovered from non-group entities. There is also a proposal to sell off the company’s real estate assets, including its headquarters at Bandra Kurla Complex, in Mumbai. Uday Kotak, chairman of the board of IL&FS, estimates that the real estate proceeds can alone fetch ₹3,500 crore, including ₹1,500 crore for the swanky headquarters.
Addressing the media after the board meeting, Nayyar said that the complexity of IL&FS, where several of its group companies competed with each other, was not conducive to the overall business of the company. He said that often group companies worked at self-defeating purposes. He also compared the debacle at IL&FS with the corporate scandal at Satyam Computers which took place exactly a decade ago.
In the case of the Satyam, its management had siphoned the company’s money to invest in their personal ventures. Nayyar said that the scandal was simple at Satyam, but the company itself was run efficiently with a lot of processes in place. He also noted that Satyam’s then management had kept costs low. However, he pointed out that the IL&FS management had no restraint on expenditure. Says Nayyar: “I don’t know why this company needed so many cars.”
The new board has readied a resolution plan for all the 302 entities and the strategy has been three pronged – monetise assets, push companies to become profitable and enable them to service their own debt and finally, restructure debt with lenders. Monetisation would be carried out by selling minority shareholding investments and in real estate assets. Greater attempts would also be made to recover loans given by the NBFC to external entities.
There are several deals close to conclusion, which put together would account for a total debt of ₹36,400 crore. The big closures would come from the sale of renewable energy SPVs for which approvals have already come from NCLT. On final approval from lenders, IL&FS would net ₹4,320 crore from this sale. There are over 47 “green” entities worth ₹7,930 crore which are servicing all obligations, which are expected to be sold without much difficulty. For over ₹21,000 crore worth of road projects, IL&FS has received bids for half and for the other half, there is a plan to bring out an infrastructure investment trust, after the recent success of Bengaluru-based Embassy Group’s real estate investment trust listing on the bourses.
Kotak terms the early assets under monetisation as low-hanging fruits and expects that it will only get tougher to sell or recover monies from the remaining. In the coming year, IL&FS will also have to resolve several contracts where it will have to pay severance or claims from government agencies for not completing road or penalties for delays in execution of projects. He feels that eventually recovering 50% or about ₹47,000 crore seems a good target as of now.