It is a common practice in mergers and acquisition for the seller to indemnify and extends warranties to the buyer for future liabilities arising for the period prior to the deal
The board of Infrastructure Leasing & Financial Services (IL&FS) has stated that it won’t provide indemnity and warranties to potential buyers, as per a report by The Economic Times.
The move will steeply impact valuations at a time when the cash-strapped entity is looking to sell assets to pay off its debt of about Rs 91,000 crore.
IL&FS had approached the National Company Law Tribunal in September last year, seeking relief from insolvency proceedings. Defaults by the company led the government to reconstitute the board in October 2018, with veteran banker Uday Kotak at the helm.
The report said, quoting sources, that several potential buyers are negotiating for a lower price, adding that the decision not to extend warranties or indemnity was a deliberate one.
“The company is managed by the government-appointed board… This board is only there for a period and cannot be held accountable for future liabilities,” said a source quoted in the report.
It is a common practice in mergers and acquisition for the seller to indemnify and extend warranties to the buyer for future liabilities arising for the period prior to the deal.
“Lack of indemnities and warranties can steeply drive down value of assets on the block. There are many buyers for the assets, but at a lower price,” added the source.
IL&FS has listed its renewable energy units, road projects, realty assets, education and alternative investment management ventures, securities services business, among others for sale.
Recently, the company said it has received more than 30 bidders for 22 road assets worth over Rs 25,000 crore and 15 applicants were interested in Rs 2,000 crore of renewable energy projects.
According to the report, buyers fear they won’t be able to secure insurance cover for any future liabilities on IL&FS assets. Even if they do manage to get cover, insurers will charge a hefty premium for taking on this risk.Moneycontrol couldn’t independently verify the report.