Crisis-hit IL&FS looks to exit long-term project financing business

Crisis-hit firm to concentrate on management and execution of infrastructure projects

Shareholders of Infrastructure Leasing & Financial Services (IL&FS) are discussing a restructuring proposal under which the company will focus mainly on the management and execution of infrastructure projects, including engineering, procurement and construction (EPC) contracts, and exit the financing of long-term projects.

Some assets of the infrastructure development and finance major, which is facing a severe liquidity crunch, will also be put up for sale to pare its debt. 

A top source aware of the developments in IL&FS said the company had strong project management and execution skills for infrastructure projects, similar to those of global firms like Bechtel. The source said IL&FS was executing large projects like the Zojila tunnel, which would provide all-year connectivity between Srinagar and Leh, as an EPC contract. He pointed out that increasingly, the company had not been bidding for build-operate-transfer (BOT) projects and moving towards EPC contracts.  

The source also said the board of IL&FS had made numerous attempts earlier to sell the company. An offer by Ajay Piramal some years ago to buy a majority stake in IL&FS could not fructify because of a difference of opinion on the fair valuation of the company between the Piramals and one of the key shareholders of the company, whose independent valuation had pegged the share price much higher. The Piramals did not respond to a query on the issue. 

Yet another attempt more than a year ago to sell the transportation assets in IL&FS Transportation Networks to global private equity fund Lone Star also did not materialise. The source, however, added that there were not too many investors looking to buy IL&FS assets.  

LIC is IL&FS’s largest shareholder with a 25.34 per cent stake, while Orix Corporation of Japan owns 23.5 per cent.

Nearly half of the Rs 900 billion debt of IL&FS is due to various highway projects. According to estimates, of this debt, as much as Rs 350 billion was on the books of IL&FS, while another Rs 170 billion was in the balance sheet of IL&FS Financial Services.  

The management is now considering a proposal to appoint an international audit firm to authenticate the Rs 150 billion claims that it has made against the National Highways Authority of India. 

Sources said this was important to get a realistic picture of how much is recoverable after the arbitration and due process of law. However, the process of recovery could take over a year, they said.

THE ACTION PLAN 

• Get out of infrastructure financing

• Sell key assets 

• Appoint an international auditor to validate claims made to NHAI

• Seek a moratorium on debt repayment