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The cup of woes of the cash-strapped IL&FS Group seems to be over-flowing.
A Group firm, IL&FS Financial Services (IFIN), said it could not service commercial papers (CPs) that fell due on Monday. IFIN has been having trouble servicing CPs over the past 10 days or so.
It could not service CPs that fell due on September 14; they were settled the next day. Again, on September 18, the company could not service CPs due that day.
The amounts raised by IFIN via CPs, however, could not be ascertained.
According to RBI guidelines, a company can access the CP market for up to six months from the date of repayment of the obligation.
The development comes a few days after the resignation of five IFIN directors, including four independent directors — Renu Challu, Surinder Singh Kohli, Shubhalakshmi Panse and Uday Ved — and a non-executive director Vibhav Kapoor, apart from MD and CEO Ramesh C Bawa.
CPs, which are issued in the form of a promissory note, are unsecured money market instruments — a low-cost alternative to bank loans.
The original tenor of a CP is between seven days and one year.
Ripple effect
Mutual funds and banks, which typically subscribe to CPs, may feel the ripple impact of these developments at the IL&FS Group.
Earlier, IFIN’s parent, IL&FS, had reportedly defaulted on an inter-corporate deposit of ₹1,000 crore raised from SIDBI.
Credit rating agencies have downgraded IL&FS and some of its subsidiaries and the Group may find it difficult to mop up resources in this situation.
The IL&FS management claims that around ₹10,000 crore of the Group’s liquidity is stuck in claims and termination payments.
“Our monies were used to fund the cost and time overruns caused by concession authority delaying handing over right of way. It is our case that if concession authorities release these monies, we would not be in the situation we are in,” said a communication to the staff from the management.
“What makes the situation doubly worse is that none of the recapitalisation plans fructified. With our money stuck and no new capital to raise more money, the Group has been facing financial stress, ” it added.
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