IL&FS group plans to shed 37% debt, board approves asset divestment plan

Aims to divest 25 projects in a span of 12-18 months

Faced with overleverage and tight liquidity conditions, the IL&FS group has firmed up plans to shed its debt by 37.5 per cent, or by Rs 300 billion, to Rs 500 billion by divesting 25 projects over 12-18 months. The board of directors has approved the specific asset divestment plan, the company said. Two-third of debt will be from IL&FS Transportation Network Ltd (ITNL). 

The overall debt is expected to come down to Rs 500 billion after the planned divestments, Vibhav Kapoor, chief investment officer, IL&FS, said. Out of the 25 projects identified for sale, concrete offers have already been received for 14. 

Earlier this month, rating agency ICRA had downgraded rating for IL&FS’s long-term loans and debentures. The change in the rating factored in the elevated debt levels owing to the funding commitments towards group ventures.

In a statement, IL&FS said the board took cognisance of the situation of overleverage. It had arisen as a significant percentage of the group’s liquidity, aggregating to over Rs 160 billion stuck in claims and termination payments.

Kapoor said the board also approved a rights issue of 300 million equity shares at Rs 150 per share, aggregating to Rs 45 billion, to shore up the capital of IL&FS. The rights issue would be completed by October 30. 

As of March 31, 2018, IL&FS net worth was at Rs 74 billion. The combination of capitalisation and debt reduction through the sale of assets would reduce IL&FS’s leverage ratio significantly. 

At this gearing, IL&FS will be able to continue to support the government’s ambitious programme for the infrastructure sector, both as a sponsor manager and as an investment bank.

The board approved recapitalisation to the extent of Rs 50 billion in group companies — IL&FS Financial Services, IL&FS Transportation, IL&FS Energy, IL&FS Environment, and IL&FS Education. IL&FS has recognised opportunistic asset monetisation as a key strategic initiative. But the actual progress on the same has been slow, resulting in high gearing for the company, albeit within the regulatory limit, and deterioration in credit profile of key investee companies, the company said.

Whilst the government had taken several measures to expedite settlement and streamline the process, it would take two to three more years to unlock these pools of liquidity for the company. In this context, and to enhance the liquidity position of the company, the board also approved approaching shareholders for additional support to the extent of Rs 90 billion, the company said.