IL&FS board appoints financial, restructuring advisors for turnaround plan

JM Financial Consultants, Arpwood Capital and Alvarez & Marsal will advise the board going forward

The new board of Infrastructure Leasing & Financial Services (IL&FS) took the first big step towards reviving the debt-ridden company by appointing two financial and transaction advisors and a restructuring advisor. 

Arpwood Capital and JM Financial Consultants, the appointed financial advisors, will help the board with transaction and monetisation decisions. It will help the firm in reaching valuation numbers of proposed disinvestments, including stake sales, that the new board is likely to take in the coming weeks.

Alvarez & Marsal, on the other hand, will assist “in maintaining strict controls on and managing liquidity on a day-to-day basis at all levels in the group, evolving a resolution plan, and management of stakeholders as regards the resolution at the time of the implementation”, a statement from the company said. The firm, which specialises in turnaround management, had also been appointed by the old board, which was superseded on October 1, after the corporate affairs ministry moved the National Company Law Tribunal (NCLT).  

Finding a solution

• JM Financial and Arpwood Capital to help firm with divestment valuations
   
• Alvarez & Marsal will help manage liquidity issues and resolution plans
   
• Board likely to go for proposed disinvestments, including stake sales
   
• Stake sales could be in IL&FS Financial Services, IL&FS Energy Development
   
• No budgetary support for IL&FS bailout, government official tells Reuters 
   
• Life Insurance Corporation could pump money into IL&FS, official says
   
• NHAI could take over some incomplete projects and award them to others 

A Reuters report on Monday quoted a government official saying the new board would come up with a revival plan that could include selling stakes in some of its 348 group companies. The official, who declined to be named, said the revival plan could include selling big stakes, including in IL&FS Financial Services and IL&FS Energy Development, or even “closing” them. 

He said the government could also ask the National Highways Authority of India to take over some incomplete road projects and award them to others. Also, according to the official, there would not be any budgetary support from the government to bail out IL&FS, though Life Insurance Corporation, which holds 25.34 per cent in IL&FS, could pump in more money. State-owned firms own nearly 40 per cent of the company. 

“We are confident that the new management will come up with a road map for the revival of the company,” the official told Reuters on Monday. “The government will not give any money from its budget.” Finance Ministry spokesman D S Malik declined to comment. 

IL&FS had debt of over Rs 910 billion as of September 2018.

“Engaging investment banks to get an independent assessment is in keeping with good governance practices. It will be good to have further clarity on whether they are adopting a holistic approach or are dealing with it part by part,” said Ashvin Parekh, managing partner of Ashvin Parekh Advisory Services.

The trouble at IL&FS began when it defaulted on Rs 12-billion loans to the Small Industries Development Bank of India in August and September and later spiralled into further defaults including Rs 1.72 billion on inter-corporate deposits, Rs 145.7 million in letters of credit and Rs  1 billion on repayments of principal and interest for a loan facility in October. As of October 7, IL&FS and its subsidiaries had defaulted on debt obligations totalling Rs 41 billion.

A proposed rights issue for IL&FS to raise Rs 45 billion, decided by the previous board, devolved last Friday, creating further uncertainty for the company as it needs Rs 35 billion in liquidity support immediately. The issue was open from October 5 to October 19.

The company has Rs 40 billion worth debt and bonds coming up for redemption in the coming weeks.

After the NCLT allowed the government to take over IL&FS and reconstitute the board with the latter's nominees, the corporate affairs ministry moved another petition on October 12. The ministry asked the Mumbai Bench of the NCLT to grant the new board “immunity”, under Section 242 of the Companies Act, for three months against any action by regulators and  authorities in case the company and its subsidiaries were to default on further debt obligations. The plea was rejected.

The ministry appealed against the decision at the National Company Law Appellate Tribunal (NCLAT), which overturned the NCLT’s decision on October 15 with an interim order. The NCLAT accepted the government's plea and extended “protection” to IL&FS and its 348 subsidiaries. It also ordered a stay on suits filed by any party, bank or company against IL&FS and its subsidiaries.

The company's bankers and lenders are also barred from exercising their right to set off their dues against current accounts and other deposits of the company (and its subsidiaries or associate companies), stated the NCLAT in its order. NCLAT will hear the case next on November 13.