IL&FS Energy Development defaults on term credit to financial institutions

The IEDCL default comes at a time when parent IL&FS itself has defaulted on repayments to SIDBI

IL&FS Energy Development (IEDCL), a subsidiary of Infrastructure Leasing & Financial Services (IL&FS), has defaulted on a term loan to financial institutions and is set to default on other loans too, if parent IL&FS does not step in to infuse fresh funds into the firm, warned lenders.

The IL&FS board is due to meet on Saturday to take a call to seeking loan of Rs 30 billion from two of its promoters — State Bank of India and Life Insurance Corporation. IL&FS, in turn, will invest part of this money in IEDCL so that the firm can meet its immediate financial commitments due this month end.

The IEDCL default comes at a time when parent IL&FS itself has defaulted on repayments to Small Industries Development Bank of India (SIDBI). Another subsidiary IL&FS has also defaulted on its commercial paper. According to Reserve Bank of India (RBI) rules, it cannot access the commercial paper market till February. 

The central bank is currently auditing the books of IL&FS to check for irregularities.  

IL&FS, which has consolidated debt of Rs 910 billion, has given a debt service reserve account (DSRA) support undertaking to IEDCL, saying it will arrange for necessary funds in case of default.

An email sent to IL&FS did not elicit any response till the time of going to press.

IEDCL has Rs 7.44 billion of principal repayments (excluding group company loans) due over the next one year. As of June, the company had Rs 130 million in unencumbered cash and bank balances.

Unless IL&FS chips in money, it will default, said a person close to the development.

Earlier, the firm was meeting its debt repayments either by selling assets, refinancing with new loans, or by support from promoters. The delay in receipt of funds from these sources led to weak liquidity and thus increased the refinancing risk, according to an analysis by rating firm Care on September 6.

Besides, IEDCL through its subsidiaries has exposure to electricity distribution companies in Tamil Nadu and Rajasthan, which have weak credit profiles and have not paid for power purchase on time. The power distribution firms in both states have already participated in the Central Financial Restructuring Scheme called Ujwal Discom Assurance Yojana (UDAY). This may help IEDCL to get its dues from the distribution companies faster, said analysts.

IEDCL’s main subsidiary IL&FS Tamil Nadu Power (ITPCL) is operating on a merchant basis. Lack of long-term revenue visibility remains a key concern, leading to volatility in cash flow generation. However, ITPCL expects to sign a three-year power purchase agreement with PTC India at Rs 4.25 per unit, which may help it get regular cash flow.

IEDPL had an installed capacity of 2,803 Mw with an additional 100 Mw of wind capacity under construction as on June 30.  It posted a loss of Rs 599 million on revenues of Rs 16.95 billion. Its total liabilities were Rs 45.19 billion.