Beena Parmar
Moneycontrol News
In its second progress report to the National Company Law Tribunal (NCLT), the new board of Infrastructure Leasing and Financial Services (IL&FS) has outlined plans relating to cost cutting, assessment of liquidity, evaluation of domestic and overseas assets and their sale for resolution.
"The process of assessing and verification of such facts is an ongoing exercise (including audits, as may be required) and is subject to further internal and external validation. Therefore, the information and analysis as set out herein is based on data provided by the relevant IL&FS Group entities to the new board and is subject to ongoing verification and changes/ revisions/ corrections," the Uday Kotak-led board said in the 18-page report.
The new board had taken charge after NCLT approved a resolution of the liquidity crisis at IL&FS given its huge debt of Rs 91,000 crore.
In addition to the resolution efforts, some lenders have marked lien on or appropriated funds from the respective accounts of the entity against their outstanding dues in that entity / other group entities, the report said.
“Lenders in certain entities are not permitting O&M payments / other operational payment, including salaries, which are essential for the going concern status of the entity. Such lender action is to the detriment of such entities and would lead to value erosion for all stakeholders,” it added.
Cost-cutting measures
The new board has undertaken a series of steps that have resulted in reduced operating costs such as terminating non-essential real estate premises. This has also provided some liquidity (on account of refunds). These measures have resulted in cost rationalisation of about Rs 7.7 crore.
Closure of offices at various locations yielded savings of Rs 4.9 crore, while leasing of offices of IL&FS Financial Services garnered Rs 13.5 crore with a security deposit of Rs 6.7 crore.
The board is also evaluating certain other proposals for the sale of non-core assets to raise immediate liquidity.
Manpower costs
The new board has also executed manpower optimisation initiatives such as salary rationalisation and separation of superannuated consultants. The exercise is likely to yield net savings of nearly Rs 100 crore annually.
Initiatives under process in Phase II of the plan include talent restructuring and amalgamation of roles & responsibilities.
“These steps will yield an approximately 50 percent savings in the wage bill of the IL&FS Group. Several other initiatives are being initiated and that will bring down total manpower of the IL&FS Group by approximately 65 percent and wage cost by 50 percent respectively," the report said.
It further plans to close other leases and sale of cars, office premises and non-core assets.
Assessing liquidity measures
The group’s resolution advisor Alvarez & Marsal (A&M) will evaluate the short and medium-term liquidity and develop 13-week cash flow estimates for the next 12 months at each entity level along with its debt serviceability potential.
“More than 165 entities have been reviewed and close to 100 entities have operational cash gap till 31st March 2019,” the report said.
It pointed out some of the key entities which will face the cash gaps IL&FS, ITNL, Elsamex (India) and several other subsidiaries of ITNL, IL&FS Energy Development Company (the holding company for the energy vertical) and several of its subsidiaries.
Resolution process
As part of the resolution process, A&M is in the process of:
(i) reviewing the existing capital structure of entities within the IL&FS Group;
(ii) assessing incremental funding requirements for capex / working capital at the relevant entity level;
(iii) classifying entities based on debt serviceability and viability;
(iv) assisting in identifying entities suitable for monetisation; and
(v) identifying encumbrances created on assets of various entities within the IL&FS Group and approvals for divestment at holding company level (i.e. IL&FS), business vertical/ platform level and at the level of the operating SPVs.
Update on overseas operations of ITNL
ITNL has operations in Spain, the US, Africa, the UAE, Singapore and China and the initial assessment of the new board is that a lot of the overseas entities (under the ITNL group) may need to be resolved/ restructured/ divested or ultimately wound up.
For the Spanish operations of Elsamex SA, the report said a binding offer has been received from a buyer for Elsamex’s holding in the JV (which operates a road asset in Madrid) along with an R&D laboratory that Elsamex owns. Elsamex is also engaged in negotiations with its lenders for restructuring the debt and/or induction of a potential investor.
Elsamex is undertaking 3 ‘ORPC’ projects (i.e. output-based performance and rehabilitation contract) in Ethiopia in a joint venture with ITNL which has been or will be terminated by the Ethiopian Roads Authority. There are various outstanding tax and salary payment dues in these projects.
Two projects being executed in Botswana are 82 percent and 68 percent complete, respectively. The work for each of the projects is progressing well and expected to complete within the extended (approved) timeline.
ITNL also has ongoing projects in the US, the Middle East, Africa and other parts of Asia, where, “in the current circumstances facing the ITNL and the group, remittance of funds from ITNL (India Operations) to offshore projects is a challenge under the regulatory and legal framework in force. The options for resolving offshore entities will be considered from among divestments, restructuring, closure etc., in accordance with local jurisdiction regulations, and the most optimum resolution will be considered/arrived at on a case to case basis."
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