Govt mulls sale of beleaguered IL&FS to a financially strong investor

India is examining options including an outright sale of Infrastructure Leasing & Financial Services Ltd, a person with knowledge of the matter said, as the government tries to stem defaults at the lender with $12.6 billion of debt. 

A plan to be presented to a bankruptcy court Wednesday by the state-appointed board of the lender includes selling the entire stake to a financially strong investor and ensure business continuity, the person said, asking not to be identified as the matter is private. Other options include splitting businesses according to verticals and disposing them off to several buyers or injecting liquidity at group level to avoid an outright sale.    

The beleaguered financier hasn't stopped missing payments even after the government sacked the lender's board and pledged to stem defaults. Fixing the cash flow crisis at the company is vital to revive confidence in India's credit markets at a time when Asia's third-largest economy grapples with rising oil prices and a plunging currency. The Serious Fraud Investigation Office this month started an investigation into IL&FS.

The plan finalised by the new board led by Asia's richest banker, Uday Kotak, will be put up before the National Company Law Tribunal on October 31. The court had approved the government's move to take over the lender and accepted the plea that the move was crucial to protect the financial markets. Finance Ministry spokesman D S Malik declined to comment. 

The lender's borrowing from banks and financial institutions is Rs 630 billion on a consolidated basis, according to the balance sheet for the year ended March 2018, the official said. Exposure of the banking sector to IL&FS is pegged at around Rs 530 billion, about 16 per cent of all lending to non-banking finance companies.

While the matter is being heard in the court, the board could look at selling assets, both core and non-core, for infusing liquidity and ensuring timely loan repayments, the official said.

The troubles at IL&FS had been intensifying since July, when company founder Ravi Parthasarathy stepped down, citing health reasons. Defaults from August within the group rattled India's money markets, added to the pressure on corporate bond yields and sparked a sell-off in the stock market.

The IL&FS Group is a bewilderingly complex conglomerate, with 348 direct and indirect subsidiaries. Its investors include Life Insurance Corp, India's largest life insurer; State Bank of India, its largest bank; and Housing Development Finance Corp, its largest mortgage lender. Japan's Orix Corp is the company's second-largest shareholder.