An overhaul in its expenses is in the works that include big cuts in the wage bill and possible layoffs
The new board of the debt-laden Infrastructure Leasing & Financial Services (IL&FS) is in the process of hiring a professional independent agency that would generate a report in order to get a reliable picture of the mess that the company is in, a source in know of the matter told Moneycontrol.
A top government source said that IL&FS needs at least Rs 100 crore a month to remain afloat.
“For the group to be afloat, we need to fulfil working capital needs as well as the contractual and repayment obligations. Rs 100 crore per month (is required) just to stay afloat, excluding repayment,” the official said.
Independent expert professional entities will perhaps do the due diligence for them (for the board) to fill up the gaps. The government feels that a partial picture has emerged…and they need to get a complete, reliable picture, the official added.
While the first precedence is to remain afloat, cost rationalisation could also happen, which may imply job losses.
“For expenditure cuts, the government will have to take tough decisions,” the official said, obliquely hinting as possible layoffs.
Since its appointment on October 1, the new board has been trying to understand the magnitude of the liquidity crisis in IL&FS and other threats that the conglomerate is facing.
Ahead of the second board meeting on October 12, the IL&FS board Chairman Uday Kotak today met the Ministry of Corporate Affairs (MCA) Secretary Injeti Srinivas to give him a first-hand assessment of IL&FS.
“We are consulting the government and making progress on IL&FS,” Kotak said.
The Serious Fraud Investigation Office (SFIO) is also investigating into the company's business after serious complaints on some of its companies surfaced. While the government has called this a case of ‘misrepresentation of facts’, the official said that ‘a fraud cannot be ruled out’.
Fraud can be ascertained after SFIO submits its investigation report to the government in a month’s time.
The cash-strapped lender's new board of directors has swung into action quite quickly. It met for the first time on October 4 for a marathon five-hour meeting to discuss at the quantum of crisis, as well as a plausible solution to fix the huge mismatch and misrepresentation of facts.
In that meeting, Kotak said the issue at hand was a complicated one and that the board will need time to evaluate the road forward.
The company has been making headlines after a series of defaults by numerous of its group companies in September, followed by resignations of its Managing Director and Chief Executive Officer Ramesh Bawa, and several other independent board members.
With regard to repayments, there could, however, be a ‘temporary reprieve’, the official said, adding that the board will also have to honour its contractual commitments in critical projects, including that of National Highway Authority of India.
On October 1, the government superseded IL&FS' board and appointed a new six-member board with Kotak as the non-executive chairman.
After the new board's first meeting, Kotak had briefed the media, suggesting the IL&FS crisis appears more complex than it looks like as there were as many as 348 subsidiaries of the parent company, much more than was apparent earlier.
"We undertook an initial assessment of the ground reality and the way forward. We'll meet frequently to implement the directions of NCLT and to prepare a roadmap and turnaround," Kotak, who heads private sector lender Kotak Mahindra Bank, had said.
Since August, IL&FS has defaulted on multiple debt instruments issued by it, which have had a contagion impact on all lenders, particularly non-banking finance companies (NBFCs).
The company had earlier claimed that it had around 150 subsidiaries, including around 50 overseas.
The other members on the IL&FS board are former Executive Vice Chairman of Tech Mahindra Vineet Nayyar, former SEBI Chairman GN Bajpai, ICICI Bank Non-Executive Chairperson GC Chaturvedi, IAS officer Malini Shankar, and retired bureaucrat Nand Kishore.
State-owned insurer LIC is the largest shareholder of IL&FS with over 25 percent stake, while Orix Corporation of Japan owns 23.5 percent.