Uday Kotak to step down as the Chairman of IL&FS

Uday Kotak will step down as the Chairman of the board of IL&FS after his term ends on April 2. CS Rajan, Managing Director, IL&FS has been appointed as Chairman and Managing Director for six months with effect from April 3 by the Ministry of Corporate Affairs.

Three and a half years after it took over, the new board and management of troubled Infrastructure Leasing and Financial Services (IL&FS) has addressed ₹55,000 crore of debt and has retained its overall resolution estimate of ₹61,000 crore.

Kotak expressed hope that the board will do even better than the estimated ₹61,000 crore of resolution. “This will be a matter of great satisfaction in a country where group resolution gives single-digit numbers,” he said.

The Rs 55,000 crore of debt addressed till date represents over 90 per cent of the overall estimated resolution value and the board is hopeful that the resolution of a substantial part of the remaining Rs 6,000 crore debt comprising of 22 to 23 entities will be completed in the new fiscal 2022-23.

“The overall resolution estimate of 62 per cent is double the average recovery of 31 per cent under IBC,” Rajan said at a press conference on Tuesday.

Giving an update about the progress of resolution, Rajan said Rs 21,000 crore of debt has been discharged through monetisation of assets and debt repayment, largely to public sector lenders.

The group also has nearly Rs 20,000 crore of cash and InVIT unit balance while resolution of Rs 14,000 crore is filed with courts. Of this amount, Rs 7,500 crore has been approved and transaction closure is underway, Rajan said.

An application has been filed with NCLAT for undertaking interim distribution of Rs 16,000 crore of cash and InvIT units available across the Group.

“Over 75 per cent of this would be distributed to creditors of three large holding companies - IL&FS, IFIN and ITNL - which have a large base of public fund creditors,” Rajan further said.

In all, of the 347 entities under IL&FS Group as of October 2018, a total of 246 entities stand resolved leaving 101 entities to be resolved in the next financial year.

It is now up to the government to decide what has to be done with the remaining companies as many of them are defunct. Additionally, land plots, office buildings and residential properties, may also become part of the residual resolution at a later stage.

IL&FS headquarters sale:

As part of the resolution, the IL&FS headquarters (TIFC) in BKC Mumbai has been sold to Brookfield for Rs 1,080 crore. A letter of intent has been signed with Brookfield and the sale will be completed in 2022.

“This amounts to about Rs 29000 per square feet, which is broadly in range of other properties in BKC,” Kotak said, noting that the IL&FS headquarter is an iconic building.

Challenges galore:

Both Kotak and Rajan highlighted a number of challenges in the resolution of the debt that have impacted timelines.

“The challenge we faced was the structure of IL&FS,” Kotak said, noting that at the time of the IL&FS crisis, there was no IBC process for NBFCs. “Even today, most NBFCs (under resolution) are single companies. IL&FS is a very complicated entity under the guise of an NBFC,” he said.

Kotak also highlighted that the issue of group resolution still needs to addressed. “IL&FS is a case study,” he said.

He also called for faster timeline for judicial processes.

Kotak further said the resolution process needs to ask the tough question as to whether it is getting fair value to the creditors. “This is a very important point versus the time value,” he said, noting that over the last few year, there is significant fatigue amongst most creditors under insolvency.

He also praised the government and policymakers for stepping in quickly at the time of the IL&FS crisis. “When we have a crisis, policymakers and government have to come in fast. Speed is important,” he said.

According to Rajan, some of the challenge in the resolution include the existence of complex share-holding arrangements and web of infra group borrowings, non-payment of dues by state utility to ITPCL, delay in receipt of annuities from some State Governments, securing various consent from other stakeholders including lenders, shareholders and joint venture partners, coercive creditor actions, and ongoing legal proceedings by different lender groups, sub-contractors and authorities.

The Centre had in October 2018 taken control of debt ridden IL&FS and had replaced the old board with the new board led by Kotak. The Group had over Rs 99,000 crore of debt at the time.

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