IL&FS is a 'complex maze': Will public money come to the rescue yet again?

IL&FS Transportation Networks | The company defaulted on the interest on non-convertible debentures due on August 25, 2020. (Image: Reuters)

Past the heavily-guarded gates of Infrastructure Leasing and Financial Services (IL&FS) headquarters in Mumbai, the new non-executive chairman Uday Kotak's words about IL&FS being a "maze" with "many complexities" resonate more than ever.

Getting to the press briefing on the 10th floor meeting room of the huge structure, reflected the IL&FS group's complexity further.

Mediapersons had to travel through a maze of a few parking lots to reach the elevator, which went up only till the 9th floor. Walking up the stairs to the 10th floor along with a security personnel, passing multiple cubicles onto the left and then a narrow alley led us finally to the meeting room.

On October 4, the newly appointed seven-member Board met for the first time. After an over five-hour meeting, Kotak said, "The board is committed to an objective process of making a fair assessment of the facts...Keep in mind, for us to be able to assess a whole maze of 348 entities, more than double of what was the earlier assessment, it will take us a longer time."

Vineet Nayyar, who is slated to be the vice-chairman and managing director at IL&FS, said, "...you may not have such a clear-cut solution as there is complexity at multiple levels. But hope we can come out with a solution."

On October 1, the government, which is a quasi-owner of the group, forced out the previous board after it argued at the National Company Law Tribunal (NCLT) that the IL&FS management presented a rosy picture when all was not well.

Starting early September, the defaults by IL&FS, which is one of the country's biggest shadow banks, has cast a shadow over the entire non-banking sector.

The defaults by IL&FS raised fears among more likely defaults by other non-banking financial companies (NBFCs).

The problem is that most of IL&FS's assets are long-term and illiquid projects. Of late these projects were funded with short-term borrowings while a lot of the company's receivables were stuck due to delays, stalled projects and termination of payments, some from the government itself.

This has led to a cash-crunch situation where IL&FS and some of its arms, including the listed ones have been unable to repay their short-term loans.

Founded in 1987, IL&FS was supported by state-owned banks, to provide finance to local governments for infrastructure. Over 30 years, it has grown into a vast conglomerate, with a web of 348 group companies. This number was 169 as per public records previously.

No shareholder, including the big ones such as Life Insurance Corporation of India (LIC), State Bank of India (SBI), Orix corporation of Japan, Housing Development Finance Corporation (HDFC) and Central Bank of India, noticed or could discover the deterioration in the financials.

The government has accused the management of being “well aware of the precarious and critical financial position”, but continuing to present “a hunky-dory scenario which was just a mirage”.

IL&FS group's debt nearly doubled to Rs 91,000 crore between 2014 and 2018. The new management says this debt was as on March 2018 and it could rise further given its off-balance sheet liabilities.

It is still unclear on how much funds will be infused by the state-owned and private shareholders, but the government and regulators have assured to keep IL&FS afloat to save its value.

With the new board set to meet more frequently to clear the mess, it remains to be seen if public money, yet again, will be the only bail-out option.