Infrastructure Leasing &
Financial Services Limited – Crisis
AUG 2018 – SEP 2019
Introduction
Core Investment Company and serves as the holding company of the
IL&FS Group
Founded in 1987 with equity from Central Bank of India, Unit Trust of India
and Housing Development Finance Co to fund infrastructure projects
IL&FS's major shareholders include: Life Insurance Corp of India holding
25.3% stake, State Bank of India with 6.42%, Japan's Orix Corp holding 23%
and the Abu Dhabi Investment Authority with 12%.
Business Model : Provide Long Term Finance to Infrastructure Projects like
Roads, Bridges, Toll Plazas, Water Projects, Ports, Metro Projects etc.
The Beginning of Crisis
The crisis began in August 2018, when ILFS defaulted on the payment of Rs.1,000 Cr that
was issued by SIDBI
Another Subsidiary of the IL&FS group defaulted an amount of Rs. 450 Crore to
Development Finance Bank
Credit-rating agency ICRA downgrade from AAA (highest credit rating). downgraded
the company’s creditworthiness to ‘D’ (default grade)
Total Defaults – 8 , Amount of Default – 4500 Crores
Factors contributing to default
Assets-Liability mismatch: The major reason for the crisis negative Asset liability
mismatch as the outflow of liabilities became more than the inflow of assets.
Investing in long term assets but borrowing money on short duration debt
instruments led to a huge asset liability mismatch.
Consolidated debt : equity ratio of ~ 10 : 1 as on 31 Mar 2018
Investment in unviable projects has been a major issue for ILFS accumulating
nearly 60000 crore debt
The company was projected as a Profitable Company till F.Y:2016-17 by way of
Window Dressing. But in F.Y: 2017-18 the company reported a loss of 2,439
Crores due to heavy borrowing costs of Rs. 7,923 Crores whereas the EBDIT was
only Rs.7,200 Crores
IL&FS Group: Total outstanding (FB & NFB)
Action by Government
On 1st Oct, 2018, the Government of India suspended the existing Board of Directors
and a new board was constituted.
The new board consists of Kotak Mahindra Bank managing director Uday Kotak,
former ICICI Bank chairman, former SEBI chief and former IAS officers.
Serious Fraud Investigation Office (SFIO), u/s 212 of Companies Act, 2013 - started
investigation and reported that The financial statements doesn't show the true and fair
view of the state of affairs of the company as the company was funding the defaulting
borrowers
Action by Government Agencies
RBI ordered for a Forensic Audit which was conducted by Grant Thornton LLP
The forensic audit, submitted to IL&FS board last week, also found 107 instances of loan
ever-greening, loans without collateral, and of links between the IL&FS management and
borrowers’ companies
The Ministry of Corporate Affairs (MCA) had in June moved NCLT seeking a five-year ban
on them . On these auditors had challenged that they have already retired as auditors
and only continuing auditors can be removed under Sec 140(5) of Company's Act, 2013
Impact on Auditors’
Deloitte was the Statutory Auditor from F.Y:
2006-07 to F.Y : 2016-17
Replaced by BSR & Associates in F.Y:2017-18
The Current Situation : October 3 – Pending
Hearing in Bombay High Court against the
Auditors
BAN ???
Options available to address crisis
Offer right issues: This would enable IL&FS to generate extra funds to recapitalise. But as per
media report a 4500 cr right issue is highly under subscribed.
Amalgamation / Acquisition by other Profit making entities
Sell assets to repay debt: IL&FS has approached National Company Law Tribunal for asset
sale resolution and get liquidity to repay debtors. SBI has already proposed to buy good
quality assets worth Rs 45,000 crore
Slump Sale – Sec 50 C of Income Tax Act, 1961
Address liquidity issues till the asset sale restarts: IL&FS could manage extra fund from
financial institutions like LIC and SBI to pay its immediate liabilities.
Winding Up of Weak Companies in the Group
Preventive Measures
Mandatory
Time Period – for Top 500
Companies
SA 299 – Made Compulsory
Second Audit with Ordinary Resolution
THANK YOU
MCS – Batch 24
Presented by
Team – 8
CA Rajendra Prasad B.V
CA Abid Hussain Shaik
T. Pavan Kumar
Kundan Sai
Nutan Sai Kumar
