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It’s a classic case of the white knight needing rescue.
Nearly a decade after it took over the infra arm of B Ramalinga Raju’s Maytas and sought to bail it out of a financial mess, IL&FS is facing mammoth troubles of its own, with the Centre stepping in to salvage the situation.
The Satyam Computer scam had rocked the corporate world in 2009. Under the government’s Satyam bailout plan then, the management of the IT firm was passed on to Tech Mahindra.
Around the time, IL&FS Engineering and Construction Company Ltd, a subsidiary of IL&FS, stepped in to rescue Maytas Infra and Maytas Properties, both part of the Satyam Group (‘Maytas’ is ‘Satyam’ spelt backward). Now IL&FS finds itself in a Satyam-like situation.
Looking back
Maytas Infra and Maytas Properties were rapidly growing in their respective segments in the first decade of this century. The former had bagged the Hyderabad metro rail project, the first metro project in PPP mode, beating some of its bigger rivals. However, the project was re-tendered, with L&T getting the mandate.
Following the Satyam Computer scam, Maytas landed with IL&FS after the Company Law Board superseded the company board and managed it for six months. Maytas Infra was renamed IL&FS Engineering and Construction Company Ltd while the property arm was renamed Hill County Properties Ltd.
IL&FS sought to gradually steer the Maytas firms out of the woods. However, they have been posting losses despite several efforts towards financial restructure.
IL&FS Engineering closed FY18 with revenue of ₹2,019.78 crore and loss of ₹46.29 crore on a consolidated basis.
Red flags
Significantly, IL&FS Engineering continues to carry ‘qualifications’ about investments made before April 2009. For one, it says it extended inter corporate deposits (ICDs) of up to ₹362 crore to various companies, where the end beneficiary was Satyam Computer.
The accompanying notes to results have audit qualifications which have been carried over the quarters and years.
Auditors flagged off the company’s ₹35.77-crore investment in an overseas subsidiary whose net worth has been fully eroded. IL&FS Engineering may have potential obligation to share further liabilities.
Earlier this fiscal, the company had intimated the bourses that CARE had assigned a credit rating of CARE A1+ (SO) for its proposed issue of Commercial Papers (CP) for up to ₹100 crore. Since it had not mobilised any fund for the CP programme, CARE withdrew the rating.
IL&FS Engineering has several subsidiaries and joint venture firms, some with construction company NCC Ltd. How the ongoing trouble at the parent company will impact these enterprises is yet to be seen.
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