The IL&FS Default-Part 1
I would like to share my analysis and views on one of the biggest defaults in recent times in the country, the IL&FS Default.
About the Company
- Incorporated in 1987 as a Core Investment Company registered with the RBI
- Initial business was to finance infrastructure projects
- IL&FS finances and executes infrastructure projects via the “Public Private Partnership” model.
The crisis-timeline
June'18: IL&FS's subsidiary delays repayment
- IL&FS group's transport subsidiary (ITNL) delayed repayment of Rs 450 crore of inter-corporate deposits from Small Industries Development Bank of India (SIDBI)
- ICRA and CARE downgrades ITNL's debt ratings
July'18: Company's Founder steps down
- Group's Founder and Chairman Ravi Parthasarathy steps down, citing health reasons. Hemant Bhargava, LIC MD and nominee, takes charge as Non-Executive Chairman of IL&FS group.
September'18
IL&FS group's first default
- The group defaults on a Rs 1,000 crore term loan and its subsidiary defaults on dues worth Rs 500 crore owed to SIDBI.
- Several short-term loan defaults take place, totaling Rs 440.46 crore
Rating downgrade
- ICRA, CARE and Brickwork agencies downgrade conglomerate's rating to 'default' or 'junk' grades.
- Alongside, the Reserve Bank of India (RBI) initiates a special audit
IL&FS seeks relief from NCLT
- IL&FS defaults again and loses access to fund raising through commercial paper market for up to six months. IL&FS board seeks relief from NCLT to work out an arrangement with stakeholders
NCLT removes board
- NCLT judgment allows government to assume control and institute a new board under the chairmanship of Uday Kotak and five other new board members.
October'18: NCLAT and Resolution Plan
- Government filed application with NCLAT seeking moratorium on creditor proceedings against IFLS. Board appointed Arpwood Capital and J M Financial as transaction advisors and roped in Alvarez & Marsal to develop resolution plan
April'19: SFIO arrests former IL&FS VC
- The Serious Fraud Investigation Office (SFIO) has made its first big arrest in the IL&FS by taking its former vice-chairman Mr. Hari Sankaran into custody today.
- Deloitte faces SFIO probe in IL&FS case
- SFIO arrests chief Ramesh Bawa for irregularities in sanctions and disbursement of loans
May'19: Loans to IL&FS classified as NPA
- 53,000 crore of bank loan to IL&Fs are added to bad loan books of Banks, with NCLAT allowing to classify default loans as NPAs, though banks cannot initiate recovery process for these loans
Present situation
- 150 subsidiaries have been identified for resolution process
- Turnaround and resolution process is ongoing
- SFIO has initiated probe against credit rating agencies
In the next article, I will present my analysis on the financials of IL&FS and if there were any warning signs in the financials.
The author is a Chartered Accountant qualified in May 2015, a CFA Level 3 candidate and an MBA student at the Indian School of Business, Hyderabad.
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