IL&FS: 82 Entities with Rs 61,375 Crore Outstanding Debt Cannot Fulfil Debt Obligations

Eight months after the government-appointed board took charge of the Infrastructure Leasing and Financial Services (IL&FS) and simultaneous investigations into the IL&FS debacle conducted by Indian agencies including the Serious Fraud Investigation Office (SFIO), the gloomy picture of disaster is getting grimmer.

Months after it began investigating the financial irregularities of IL&FS, SFIO on May 31 had filed its first charge sheet — accusing 30 individuals and entities, including Siva Group chairman C Sivasankaran and nine former directors of IL&FS Financial Services (IFIN). SFIO accused auditors BSR & Co LLP and Deloitte Haskins & Sells (DHS) LLP along with others under the various sections of company law, including cheating and concealing information.

Also read: 1,400 Top Firms in India Hit by IL&FS Pandemic

“IFIN extended loans to companies of Siva, ABG, A2Z, Parsvnath Group and other companies. A number of these borrowers were not servicing their debt obligation. The top management was aware of the potential problematic accounts which were getting stressed in the succeeding month from the reports generated through the Management Information System (MIS) of IFIN,” the Economic Times quoted from the charge sheet.

Scale of the Damage: 82 domestic entities of IL&FS with combined outstanding debt of Rs 61,375 crore, are not in a position to service their debts. These entities are categorised as ‘Red’ entities by the new board — companies or entities which are able to service both secured and unsecured creditors are ‘Green entities’ — so far, 55 companies with total debt of Rs 11,022 crore and 13 entities with debt of Rs 16,372 crore, which are able to service only secured lenders are categorised as ‘Amber’ entities. While 8 entities are currently undergoing liquidation or insolvency process and another 11 companies with debt of Rs 469 crore are yet to be classified.

Also read: Forensic Audit Unearths Loopholes in IL&FS Books: Report

As of October 2018, IL&FS Group had total outstanding debt of Rs 94215 crore. Of this, debt availed by Indian entities of the Group was Rs 89,246 crore. In April, the new board announced that at least 45 subsidiaries of IL&FS (of total 347 subsidiaries) are either closed or struck off or divested or liquidated, the spokesperson had confirmed that these companies are now shuttered, as they were essentially operated for the sake of round-tripping loans and funds, one of the potential financial frauds committed by the IL&FS. Forty-two of these companies are claimed to be overseas entities. National Company Law Appellate Tribunal (NCLAT), New Delhi on May 30 has stated that the ‘Amber’ entities will be required to service all debt obligations of the provident and pension funds lenders, if they are not reclassified into ‘Green’ entities by the next hearing (July 12). For other lenders, the appellate tribunal may ask the entities to service the debt on a “proportionate basis”.

Also read: Banks Can Now Declare Defaulting IL&FS Accounts as NPAs: NCLAT Order

Meanwhile, the new board is also involved in assets divestment of the IL&FS group entities and has begun sale process of well functioning entities. However, this has impacted the workforce of the group entities. When the new board took charge, the Group had nearly 5,000 permanent employees and another 9,000 contractual staff. But, this work force has been now reduced by 45 per cent and, with several other initiatives under way, it is estimated that the total manpower would further come down by 65 per cent.