IL&FS board initiates austerity measures, appoints directors to 8 main arms

New board initiates austerity measures to rationalise operating and personnel expenses across all group entities and not just the holding company

The government-appointed board of directors of Infrastructure Leasing & Financial Services (IL&FS) on Friday ordered a full audit of all group companies, nominated directors to key subsidiaries, and initiated austerity measures.

While the board had detailed deliberations on the cash-strapped group’s road map, it took immediate steps such as ordering the audit of standalone and consolidated accounts of the company and subsidiaries as of September 30, 2018, based on the recommendations of the audit committee of the board.

The board has also initiated austerity measures in relation to personnel and operating expenses, according to the company. 

Sources told Business Standard that the board would be adopting cost-cutting measures to rationalise operating and personnel expenses across all group entities, and not just at the holding company. The board also approved formation of a core operating committee under Vice-Chairman and Managing Director Vineet Nayyar.

Uday Kotak, managing director and chief executive officer of Kotak Mahindra Bank, is non-executive chairman of the board of directors of IL&FS. Based on the recommendations of the nominations and remuneration committee, the board has initiated the replacement of its nominee directors at subsidiaries of IL&FS. Nayyar, former deputy comptroller and auditor general Nand Kishore, and Director General of Shipping Malini Shankar were nominated to the IL&FS Financial Services board.

Current IL&FS board members were nominated at eight subsidiaries. 

Key decisions

• Board calls for a full audit of IL&FS group accounts 

• Appoints directors on boards of key subsidiaries 

• Initiates cost-cutting measures in staff, operating expenses 

• Forms core operating committee headed by MD Vineet Nayyar 

• Has detailed deliberations on road map ahead 

Nayyar and former Rajasthan chief secretary C S Rajan will join the IL&FS Transportation Networks board. ICICI Bank Non-Executive Chairman G C Chaturvedi and Nayyar were nominated to the board of IL&FS Energy Development Company.

Rajan will also be the nominee director of IL&FS Engineering and Construction, while Nayyar will join IL&FS Education and Technology Services, Kishore will go to IL&FS Technologies too, and Shankar will be the nominee on the Tamil Nadu Water Investment Company board.

IL&FS, a systemically important non-banking financial company, is going through a crisis as it has been unable to meet repayment obligations since last month. The group has defaulted on loans, inter-corporate deposits and commercial paper (CPs) repayments to the tune of Rs 41 billion. Subsequently, rating agencies downgraded the credit quality of IL&FS subsidiaries to 'junk' from 'AA' earlier.

The government had moved the National Company Law Tribunal (NCLT), Mumbai, on October 1, which dissolved the old board of IL&FS and reconstituted the board of directors with government nominees.

The company has Rs 8.35 billion worth of CPs maturing by March 2019, of which Rs 2.5 billion CPs will come up for redemption by December-end. IL&FS is in dire need of Rs 35 billion worth of liquidity support, as it needs to repay Rs 40 billion of debt and bonds in the next 30 days.

The company has an enormous leverage ratio, standing at 13 times. Its total borrowings as of March 2018 stood at Rs 910 billion on an equity base of just Rs 69.5 billion.

After the first board meeting, Kotak had said that the board was yet to decide on the course of action in terms of raising funds to meet the company's upcoming repayment schedule.