Aditya Birla considers legal options to recover funds from IL&FS arms

While the Birla group's non-banking finance company has already moved Delhi HC to seek injunction against two road projects, the group plans to join the petition filed by IL&FS in the NCLT to recover

The Aditya Birla group, which invested in IL&FS’ group companies via its mutual fund and non-banking finance company arms, is considering legal options to recover its funds from the beleaguered group.

While the Birla group’s non-banking finance company has already moved Delhi High Court to seek injunction against two road projects, the group plans to join the petition filed by IL&FS in the National Company Law Tribunal (NCLT) to recover debt.

While public sector banks have the highest exposure to IL&FS and its subsidiaries total debt of Rs 910 billion, the Birla group is among the largest private sector investors having debt exposure to IL&FS group across its NBFC and mutual fund arms.

Data from Value Research shows that Aditya Birla Mutual Fund, has across various schemes, an exposure of Rs 6 billion worth of debentures in IL&FS’ operating companies. At the same time, Aditya Birla Finance, the NBFC arm of Aditya Birla Capital, lent Rs 1.55 billion to two road projects of IL&FS Road Infrastructure Development Company.

After two projects – Chenani-Nashri unnelway Ltd and Pune Sholapur Road Development Company – failed to repay loans since June this year, Aditya Birla Finance moved Delhi High Court for arbitration last week to recover the money.

The two companies are subsidiaries of IL&FS Transportation Networks Ltd (ITNL) which moved the National Company Law Tribunal (NCLT) on Tuesday under Section 230 of the Companies Act to recast its debt. The move has taken most of the lenders of IL&FS by surprise.” We have to join the petition filed by IL&FS so that we can protect our investment,” said a Birla insider.

Birla is not alone. Other banks and institutions, which have exposure to IL&FS, are also planning to join the suit filed by IL&FS and one of its creditors – Small Industries Development Bank of India (Sidbi). With the Reserve Bank of India meeting shareholders of IL&FS on Friday and an annual general meeting slated to be held on Saturday, lenders are hoping for some clarity on the future of the group by the weekend.

“At least two of the road projects will be sold in the next few weeks and we don’t have to take a hit on them,” said one of the lenders. The group is also planning to raise Rs 45 billion from its shareholders with three of them – LIC, State Bank of India and Orix Corporation of Japan – showing their interest to bail out the holding company.

Lenders said with IL&FS and its 40 companies moving court, the stage is set for all stakeholders to take a haircut on their exposure to the group. “The haircut could be as high as 40-50 per cent of the debt. But we have to see what the offer on the table is,” said one of the lenders of IL&FS.

Almost all public sector banks have lent to IL&FS based on the good credit score from rating agencies. “We have to find out why some of these rating agencies were unable to raise red flags earlier. We have to see whether IL&FS and its subsidiary IL&FS Financial Services deliberately did not share crucial information on RBI inspection reports with rating firms or whether it was some other reason,” said a lender.