Shareholders skip IL&FS rights issue, to wait for clarity on board's plans

Shareholders of Infrastructure Leasing & Financial Services (IL&FS) are likely to have passed the rights issue, said sources. The Rs 45-billion rights issue, which opened on October 5 and closed on Friday, did not see any of the major shareholders subscribing, said sources.  

The rights issue was part of the previous management’s fundraising plan to revive the debt-ridden company. But, with the government sacking the board and appointing a new one, shareholders may have decided to wait for more clarity before committing new investments into the company.

“The board of directors shall decide on the rights issue subscription after closure of the rights issue and shall inform shareholders accordingly,” a notice by IL&FS to the stock exchange said.

Apart from the rights issue, the previous IL&FS board in July had sought a line of credit of Rs 25 billion from Life Insurance Corporation of India (LIC) and Rs 10 billion from the State Bank of India (SBI). 

LIC owns a 25.34 per cent stake in IL&FS, while SBI has a 6.42 per cent stake. Orix Corporation of Japan owns a 23.54 per cent stake, while Abu Dhabi Investment Authority owns a 12.56 per cent stake.

IL&FS had required a line of credit by August 15 and wanted to close the rights issue by September 15 to avoid any default. The then IL&FS had also appointed SBI Capital Markets as the merchant banker to value the shares, which determined the rights issue to be priced at Rs 349 per share.

But, in the board meeting held on August 20, the board decided to slash the right issue price to Rs 150 per share after a few shareholders decided not to participate in it. The non-availability of funds led to serial defaults by IL&FS and its group companies. IL&FS defaulted to Small Industries Development Bank of India (Sidbi) on August 29 on an inter-corporate deposit. 

Sidbi informed the Reserve Bank of India about the default, which led to the regulator asking IL&FS subsidiary IL&FS Financial Services to reduce its exposure in all IL&FS group companies by March next year. According to RBI rules, IFIN cannot tap the commercial paper market for six months after a default.

On October 3, the government superseded the old board of IL&FS and appointed a new board with Kotak Mahindra Bank Managing Director and Chief Executive Officer Uday Kotak as the non-executive chairman. The new board with former Tech Mahindra vice chairman Vineet Nayyar as managing director is now working on a turnaround plan for the company.