IL&FS board rules out group-level resolution in progress report to NCLT

The government-nominated board of beleaguered Infrastructure Leasing & Financial Services (IL&FS) has effectively ruled out a resolution at the group level and is looking to pursue a business-specific plan. The board, in its second progress report submitted to the National Company Law Tribunal (NCLT), Mumbai, has listed the various steps being taken or planned to revive the infrastructure financier. 

On the assessment of a group-level resolution, the board said, “Based on an outreach conducted by the financial and transactional advisors (to potential investors who could have the ability to undertake and execute such a transaction), the initial assessment seems to indicate that currently, the group-level resolution option is unlikely to materialise.” 

The board had appointed Arpwood Capital and JM Financial as financial and technical advisors, and Alvarez & Marsal resolution advisor. Alvarez & Marsal has so far reviewed 165 entities, of which close to 100 have an operational cash gap extending until March 31, 2019, the report says. 

Resolving the mess

• Board and resolution advisor Alvarez & Marsal to develop business-specific solutions for group entities 
   
• Of the 165 entities reviewed by the resolution advisor, 100 have operational cash gap
   
• Overseas operations of ITNL need to be restructured, divested or closed down
   
• Board to look at measures aimed at reducing wage bill by 50%
   
• EoI for asset sale issued for three subsidiaries, 10 more are in the pipeline

Source: IL&FS board's progress report submitted to NCLT

The board plans to develop a resolution plan based on a structured approach covering the liquidity and cash flow assessment for the next 12 months. “Instead of undertaking the standard ‘desktop’ valuation exercise, the new board is working closely with the resolution advisor to develop entity- and business-specific resolution plans basis a structured approach covering liquidity and cash flow assessment for the next 12 months at each entity level along with its debt serviceability potential,” the report states. “A differentiated approach may be required to tackle different entities,” it adds.

To remedy the liquidity problem at IL&FS entities, the board undertook a series of steps in November, such as assessing the short- and medium-term liquidity requirements of various entities, developing 13-week cash flow forecast to optimise cash flows, and prioritising outflows that ensure operational sustenance.

According to the report, the board is of the view that a lot of the overseas operations undertaken by IL&FS Transportation Networks (ITNL) need to be restructured, divested or closed down. ITNL is one of the 346 subsidiaries of the IL&FS group. 

“The options for resolving offshore entities will be considered from among divestments, restructuring, closure, in accordance with local jurisdiction regulations, and the most optimum resolution will be considered/arrived at on a case to case basis,” the report mentions. Moreover, the board has also come up with a plan to save employee costs through a two-step process. In the first phase, rationalisation in salaries and a separation of superannuated consultants, already executed, will result in a saving of ~1 billion annually. In the second phase, the board will look at talent restructuring and amalgamation of roles and responsibilities, which could result in a 50 per cent saving in the wage bill of the group. 

Also, measures like termination of leased guest houses, closure of offices at various locations, leasing out office premises, and sale of cars and non-core assets are being evaluated to ease the liquidity crisis that the IL&FS group is facing.

So far, the IL&FS group has issued expression of interest (EoI) for three of its subsidiaries: IL&FS Securities Services, ISSL Settlement and Transaction Services, and the renewable energy business. 

During the NCLT hearing, the counsel for the Ministry of Corporate Affairs said that around 10 more EoIs were in the pipeline and are expected to be published in the next 10-15 days.

In the previous progress report, the new board had identified three options for the resolution of the group. The first option included a group-level resolution at the holding company itself, which would involve capital infusion in the group from credible and financially strong investors. The second option is for a vertical-level resolution involving solutions for all assets of a specific business vertical on a combined basis. And the third option before the IL&FS board is for an asset-level resolution process, which would undertake asset by asset solutions, explored through various methods.