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Orix Corporation of Japan, which owns 23.54 per cent in crisis-hit Infrastructure Leasing & Financial Services (IL&FS), is keen to acquire a majority stake in the infrastructure development and finance company. It wants to infuse fresh capital into the company from overseas so that it can meet its financial obligations.
According to a source close to the development, Orix, a global financial services player with revenues of $23.5 billion, has two representatives on the IL&FS board and is the largest shareholder in IL&FS after Life Insurance Corporation, or LIC (25.34 per cent).
“With its global reach, Orix has access to cheap and long-term capital. It can raise funds from Japan at 1-2 per cent and that too for 40 years needed for infra projects. The Japanese want expeditious clearance from the Indian government for the transaction and are awaiting special audit reports by the Reserve Bank of India (RBI) on IL&FS and IL&FS Financial for its next move,” said a source. Emails sent to IL&FS did not elicit any response till the time of going to press.
Orix, too, did not respond to Business Standard’s queries.
IL&FS and its subsidiaries have defaulted on repayment to lenders in the current month and the group is facing severe liquidity crisis. It had a consolidated balance sheet size of Rs 1,158 billion at the end of 2017-18. “It has infrastructure projects all over India. Orix wants to participate in India’s growth story,” the source said, adding the liquidity crisis may be short-term. However, Orix may not go ahead if there are indications of corruption or malfeasance in the special audit reports, warned the source. “Next week will be crucial; the impact of IL&FS’ defaults will be known,” he said. On Friday, IL&FS defaulted on Rs 2.5 billion worth of letter of credit to IDBI Bank.
IL&FS and its subsidiaries will have to shell out close to Rs 20 billion by next weekend (September-end) to meet financial liabilities. It has sought an immediate loan of Rs 35 billion from LIC and the State Bank of India to bail it out. If funds do not come by next weekend, it would default on its repayments, which would lead to a domino effect across the financial market, warn insiders. IL&FS has an outstanding debt of Rs 910 billion.
India’s top mutual funds have invested in the debt instruments of IL&FS and its subsidiaries and they will have to clear debt of other companies to meet redemption pressure.
IL&FS has already put its financial services arm IL&FS Financial Services (IFIN) on the block and has sought bids for the company. Last week, IFIN Managing Director and Chief Executive Officer Ramesh Bawa, along with four independent directors and a non-executive director, resigned from the board.
Bawa’s resignation came after default by the financial services firm. Under the RBI rules, IFIN cannot access the commercial paper till February next year.
IL&FS is already taking several steps to raise funds by selling assets. Between 2010-11 and 2013-14, IL&FS realised profits of around Rs 14.61 billion on sale of stake in strategic investments. IL&FS sold stake in a power-generating company to its energy vertical subsidiary to consolidate its energy holdings at fair market value, which yielded aggregate profits of Rs 3.61 billion in 2014-15 and 2015-16 (FY16).
IL&FS also sold stake in IL&FS Trust Company in FY16, wherein it realised a profit of Rs 1.13 billion in FY16 and Rs 370 million in 2016-17, respectively. IL&FS also received dividend of Rs 2.23 billion from its energy vertical on account of divestment of 49 per cent stake in the wind power projects.
But these stake sales have been inadequate to meet further funding commitments to group companies, leading to an increase in the gearing levels over a period of time. Its debt-equity ratio went up to 16.8x at the end of March 2018, against 10.6x a year ago. With high leverage, it would largely have to depend on strategic sale in projects/group companies to support group entities.
