Cautious buyers stall debt-laden IL&FS's bid to sell subsidiaries

ITNL was expected to receive its dues from the NHAI for several completed road projects but the authority had sent these demands for arbitration

In the last few weeks, IL&FS directors met potential investors, trying to hard sell all key assets — from its swanky office building in Mumbai to its listed road construction company — to pare the debt worth Rs 910 billion by half. 

But the desperate bid failed as buyers turned cautious after group companies started defaulting on loans.

An offer was even made to sell the road construction company — IL&FS Transportation Networks Ltd (ITNL) — at zero equity value by IL&FS — provided its debt worth Rs 345 billion as on March 2018 is taken over by the buyer. 

But potential buyers did not go ahead with the transaction as they wanted more clarity on the financial metrics, said a banker close to the development.  

Moreover, another hurdle was IL&FS’s entire stake in ITNL, which operates 32 special purpose vehicles, was pledged to banks. ITNL was the first company to start defaulting since June this year — leading to a domino effect on IL&FS. 

ITNL’s mandate was to develop road projects on build, operate and transfer basis. It is the largest vertical of the IL&FS group, holding over 40 per cent of the total assets of the group. 

ITNL was expected to receive its dues from the National Highway Authority of India (NHAI) for several completed road projects but the authority had sent these demands for arbitration. ITNL has a market value of Rs 8.86 billion as on Monday. 

Bankers said the group planned to sell off its financial services business but there were no takers as the Reserve Bank of India raised concerns over the company’s exposure to group companies and asked it to bring it down by March next year. “We lost interested as group exposure and NPAs were very high,” said a buyer who was contacted for the sale.

Moreover, the group wanted to sell its education business — IL&FS Education & Technology – but there was no headway in the talks. For sale of its office headquarters, the group was in talks with Blackstone REIT for a sale price of Rs 15 billion. This included debt of the IL&FS real estate company’s arm which owned the building.

“Sale of these assets started very late and led to a serial default by group companies,” said the banker.

Barring sale of IL&FS Securities to IndusInd Bank announced in June this year, the IL&FS management failed to close any other deal, leading to its collapse.

Bankers said with a new management in place, talks on the sale of these assets will move into top gear. “With a clear-cut mandate from the government, it would not be difficult for the new management to sell the assets. But the valuation will be the key,” said the banker.