IL&FS Assets May Have Hidden Demand, But Why Offer Steep Discounts

Fifty days after the takeover of debt-laden shadow bank, Infrastructure Leasing and Financial Services (IL&FS), by a government-appointed new group-led by Uday Kotak, the group is continuing to default on its repayments to its lenders, while the board is still testing its resolution plan --  the process of asset divestment.

As of now, although there is no trace of open interest in the market towards IL&FS assets,the case could be otherwise if the assets are offered at steep discounts. Reportedly, the country’s top gas utility GAIL Limited is considering acquiring all of the wind energy assets held by IL&FS. Currently, IL&FS has an installed wind energy capacity of 775 MW and GAIL, which owns 128 MW, and s planning to expand its renewable energy portfolio.

On November 13, the board called for the potential sale of two of the group’s subsidiaries -- two clearing services entities. The sale of 81.24% equity shares in ISSL (IL&FS Securities Services Limited) and 100% in ISTSL (ISSL Settlement and Transaction Services Limited). Interested parties in this sale were asked to submit expression of interest by November 23.

The sale of these two subsidiaries would perhaps give a glimpse into how further sale of the group’s assets will be like.

One significant development after the new board took over reins of IL&FS has been that the group has been granted moratorium from its creditors. Earlier, the Ministry of Corporate Affairs had approached the National Company Law Appellate Tribunal (NCLAT) after the Mumbai bench of National Company Law Tribunal (NCLT) turned down its plea to grant a 90-day moratorium over loans taken by 347 entities of IL&FS. While NCLAT granted moratorium, in the last hearing in this matter, on November 13, some creditors of IL&FS sought initiation of insolvency proceedings against the group. However, the appellate tribunal has fixed the next hearing on December 17. Since October 1, the group has been under moratorium protection and till December 17.

As on October 26, 2018, over 130 creditors had issued notices to IL&FS Group entities, which now have a stay with the grant of moratorium.

Despite the new board taking over, there is no clarity if the IL&FS and its subsidiaries would be able to submit their financial results on time. On November 20, IL&FS Engineering and Construction company sought permission from market regulator, Securities and Exchange Board of India, to delay its financial results for the quarter ending September 30. Reportedly, the company has also written to Bombay stock Exchange, informing it of the same.

As of date, the total amount of IL&FS defaults is Rs 4,640.95 crore. Recently, the group said that it had defaulted on Rs 307 crore on deposits from MUDRA (Micro Units Development and Refinance Agency), which was due on November 17.