The rights issue of infrastructure lending major IL&FS is likely to be pushed to March next year. Sources told Moneycontrol that the immediate priority of the new board is to look at the sale of core assets to raise money.
From October 5-19, a Rs 4,500 crore issue was on offer by IL&FS, as per an exchange notification. However, the issue did not take off.
While large institutional investors like Life Insurance Corporation of India (LIC) are ready to infuse capital into the group, they are waiting for asset sales in the next 2-3 months so that the short term cash crunch can be managed effectively.
"The rights issue was still being contemplated when the management rejig happened. Also, with several new issues and more unknown information coming to the fore, a decision for shareholders to take additional risks is unlikely," said a source close to the development.
Given that there is public money involved and some key stakeholders were also in the dark when it came to the company's functioning, the new board intends to receive clarity on the entire picture and only then take any decision, the source added.
On October 1, the National Company Law Tribunal had approved the takeover of IL&FS board by government nominees, saying mismanagement at the crisis-ridden financier makes it a fit case for superseding the board under Article 241 of the Companies Act.
Another source said the the board is tied-up with a detailed financial review of the group's 348 subsidiaries. In the meanwhile, the assets to be sold are being identified and only after this will a rights issue be discussed.
Apart from LIC that holds 25.34 percent stake in IL&FS, Japan’s Orix holds 23.54 percent stake in IL&FS and Abu Dhabi Investment holds 12.56 percent. Other shareholders include Housing Development Finance Corporation (9.02 percent), Central Bank of India (7.67 percent) and State Bank of India (6.42 percent).
Also read: Comment | Prevent contagion but don’t bail out IL&FS
Debt crisis
The first signs of trouble in the IL&FS group emerged in June when it defaulted on inter-corporate deposits and commercial papers (borrowings) worth about Rs 450 crore. Over the next three months, rating agencies also downgraded its long term ratings.
Among group companies, its financial services arm - IL&FS Financial Services - has also defaulted on interest payment on commercial papers four times in September.
After that, several group entities have seen a ratings downgrade and have missed a series of debt payments. IL&FS has a cumulative debt of Rs 91,000 crore.
Superseding of the boardA new six-member board led by veteran banker Uday Kotak will take charge of the company. The other members are former SEBI chief GN Vajpai, ICICI Bank Chairman GC Chaturvedi, Tech Mahindra's former executive vice-chairman Vineet Nayyar, and former bureaucrats Malini Shankar and Nand Kishore.
In his first address after the takeover, Kotak said there are 348 entities in the IL&FS group, significantly larger than they expected. He added that it (the revival) is a big task.
Earlier, IL&FS group was estimated to have 169 subsidiaries as per initial disclosures. Also read: After IL&FS crisis, govt looks into holding companies: Report
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