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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.

The ILandFS 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.


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.


Published by

Anuj Rakheja
Category Shares & Stock   Report

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