When Infrastructure Leasing & Financial Services Ltd (IL&FS) was set up in 1989, Ravi Parthasarathy became its chief executive officer. Last week, the 66-year-old credited for having built the group, resigned as its chairman after spending nearly half of his life with IL&FS.
While health issues reportedly made him hang up his boots, a professional in infrastructure financing said it was “too long and too opaque” a tenure. “Had it been some other chairman, where shareholders moved to select a successor without following the appropriate process, I would have been the devil’s advocate. But in his case, he had been there for too long,” said an Indian Administrative Service official, who worked in the infrastructure financing space.
A senior financial sector professional, who worked with Parthasarathy for over a decade, however, said he stood tall for pioneering work done in the area of private sector participation in infrastructure development and management, and was known for his forward-looking approach.
At the institutional level, however, he was not able to create much value for the group, having created a large number of entities engaged in financial services and operating a range of infrastructure businesses. The current challenges — high leverage and complexity of managing the vast expanse of businesses under one umbrella — have not sprung up all of a sudden. Before quitting, Parthasarathy, in fact, did have direct consultations with institutional investors and key figures in the financial sector to take stock of the challenges ahead.
IL&FS has a very high leverage resulting from the sizeable capital requirement across subsidiaries. As a Reserve Bank of India regulated Core Investment Company (CIC), it needs to adhere to strict leverage norms. As of March 31, 2017, the firm reported a leverage of 2.6 times of its net resources, though it was lower than 2.89 times as of March 31, 2016. One institutional investor said the plans for capital infusion and fund raising was being worked out. The management is expected to submit business plans, including monetisation of assets, in the next few weeks.
“The growth in its core business of financing could have been more considering the economic growth in the country, but it was spread across sectors,” said the official quoted above.
Prior to IL&FS, Parthasarathy cut his teeth in merchant banking and corporate banking functions at Citibank. He also has experience of working with private sector companies such as 20th Century Finance Corporation Ltd. A management graduate from the Indian Institute of Management, Ahmedabad, he holds a bachelor’s degree in science. His excellent networking and negotiating skills have helped the group identify opportunities ahead of time and swing deals in favour of IL&FS.
The best example of the latter was gaining control of Ramalinga Raju-promoted Maytas Infrastructure in 2011. After the debacle of Raju-promoted Satyam Computers due to fraud, he managed to persuade the government to hand over the control of Maytas to IL&FS, giving the group a firm foothold in infrastructure contracts, including the Gurgaon metro project.
During his tenure, IL&FS Transportation Network Ltd (ITNL) became a prominent player in the road sector, though the company had been mired in liquidity issues and capital constraint.
Four of five ITNL subsidiaries have missed payments on debt due for June, forcing rating agencies to assign a default rating. Debt worth more than Rs 28.5 billion face a default rating, while the debt riding on five projects anticipating termination stands at more than Rs 43 billion.
One top financial sector executive engaged in corporate lending said in the midst of spreading wings across business lines, there was little disaggregation of risks as an operator of business and financier of infrastructure.
At the top, he worked with a close-knit team of five highly experienced managers. This set IL&FS apart from IFCI, the other infrastructure financier, also in a financial crisis. “IL&FS is much better positioned unlike IFCI where one CEO caused all the crisis,” according to an official.
IL&FS, under Managing Director Bhargava’s chairmanship, would now have to manage stake sales in subsidiaries profitably in a timely manner, given its divestment-led business model. IL&FS’ investment portfolio remains relatively illiquid with large investments in group companies engaged in long-gestation and capital-intensive projects.