Only 19% of IL&FS Group’s Rs 99K Crore Debt Resolved by New Board in 2 Years

Only 19% of the total Rs 99,355-crore debt of the Infrastructure Leasing and Financial Services Limited (IL&FS) Group has been addressed or resolved by the end of September or in the last two years since the resolution process commenced, according to the government-appointed board of the group. The 19% amounts to Rs 19,100 crore.

Moreover, during the second quarter of the financial year, only 1% or about Rs 1,460 crore has been addressed, reporting a shortfall of Rs 7,600 crore in the debt resolution target earlier set by the IL&FS management.

“The delay has been mainly caused on account of a significant impact of COVID-19, which has added time and logistical complexities in the process of completing discussions with stakeholders and in obtaining approvals from lenders, regulators and judicial authorities,” stated the management, while adding that the shortfall is being rolled over to the subsequent quarters.

Significantly, while the government-appointed new board of IL&FS has been handling the insolvency of the Group entities, they have missed their targets even during the pre-Covid-19 quarters citing several ongoing concerns. For instance, In October last year, the board said that it expected to resolve at least 50% of the Group debt by March 2020. But as of June this year, only 18% (or Rs 17,640 crore) had been addressed.

However, 173 entities or half of the total 347 entities of the IL&FS Group have been resolved as of September 2020. A substantial 102 entities were resolved during the last quarter as Elsamex S.A, an IL&FS Group company with 100 step down foreign subsidiaries, was admitted into the insolvency during the September 2020 quarter.

In September, the government allowed Kotak Mahindra bank Managing Director Uday Kotak to continue as non-executive chairman of the IL&FS Group board for one more year who was appointed in 2018. Earlier this month, Vineet Nayyar resigned as the executive vice-chairman of the board citing health reasons.

As per the revised estimates of the board, Rs 13,200 crore of additional debt is projected to be addressed by December 2020. “Further, resolution of Rs 4,200 crore being achieved through debt restructuring has moved from September 2020 to December 2020. Resolution for Rs 10,000 crore, earlier communicated for achievement in the third quarter of 2020-21, is being moved to be achieved in subsequent periods,” stated the board.

On March 12 this year, the National Company Law Appellate Tribunal (NCLAT) approved the “group resolution framework” submitted by the board in January 2019.

The Board is now expecting to address Rs 56,300 crore debt or about half of the total debt of the Group entities by the end of March 2021.

It is to be noted that the delay and haircut in the debt resolution will impact the lenders of the IL&FS Group -- about Rs 35,382 crore is owed to nationalised banks and another 10% (Rs 9,138 crore) to financial institutions.

In mid-2018, several of the IL&FS Group entities began defaulting on their loan obligations to lenders soon after their key managerial persons started quitting their jobs. Subsequently, as murkier affairs in the Group began emerging, the central government replaced the IL&FS board with a new one in October, 2018, with Uday Kotak as its chairman for undertaking its resolution process.

The collapse of the IL&FS Group has had a cascading impact on the Non-Banking Financial Companies sector, Mutual Funds sector and the country’s financial markets for several months.

Government agencies including the Institute of Chartered Accountants of India (ICAI) and the Serious Fraud Investigation Office (SFIO) have begun probing the irregularities in the Group while arresting several members of the top management.

A forensic audit by Grant Thronton has unearthed multiple irregularities from the books of the IL&FS Financial Services entity. For instance, the audit found that about Rs 10,264 crore worth amount was fraudulently given away to several entities like Essar, DB Realty, SKIL, Gayatri Group, Siva, SREI, Kohinoor, Parsvanath and HDIL through evergreen loans.

Government probe has also found lapses in the role of statutory auditors -- BSR & Associates LLC, and Deloitte Haskins and Sells -- of the IL&FS entities.