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Key shareholders of cash-strapped IL&FS are likely to press for an audit of transactions at its 50 overseas step-down (indirect) subsidiaries before committing monies to bail out the institution via a rights issue.
IL&FS has a complex web of 135 step-down subsidiaries (companies floated by IL&FS’ subsidiaries), of which 50 are based overseas – 11 each in Spain and Singapore, six in the United Arab Emirates, three in Mexico, two each in Mauritius, Brazil, Colombia, Portugal, Indonesia and Philippines, and one each in Vietnam, Albania, United States, Hong Kong, United Kingdom, Nigeria and Seychelles.
Through the scrutiny, IL&FS’ promoters may be wanting to get a true and fair view of transactions – inter-company transactions, end use of funds, inter-company investments, and quantum of leverage – at the aforementioned entities, according to sources.
Key shareholders
The key shareholders of IL&FS, which is registered with the Reserve Bank of India as a Systemically Important Non-Deposit Accepting Core Investment Company, include Life Insurance Corporation of India (25.34 per cent), ORIX Corporation, Japan (23.54 per cent), Abu Dhabi Investment Authority (12.56 per cent), HDFC (9.02 per cent), Central Bank of India (7.67 per cent) and State Bank of India (6.42 per cent).
On August 29, the board of directors of IL&FS had approved a rights issue of 30 crore equity shares at ₹150 per share aggregating to ₹4,500 crore to shore up the company’s capital. However, the promoters are yet to take a call on subscribing to the rights issue. They are weighing the company’s asset monetisation plans and also the possibility of asking it to resort to cost-cutting measures, such as closure of some of its overseas step-down subsidiaries and a cap on remuneration of key managerial personnel, as conditions for infusing capital. In the last fortnight or so, credit rating agencies have downgraded IL&FS and some of its subsidiaries, and IL&FS Financial Services (IFIN) has found it difficult to service commercial papers. Further, IL&FS reportedly defaulted on an intercorporate deposit of ₹1,000 crore raised from the Small Industries Development Bank of India.
In the last few days, problems at the IL&FS Group have been exacerbated by top-level resignations, with IFIN informing the exchanges about the resignations of five directors, including four independent directors – Renu Challu, Surinder Singh Kohli , Shubhalakshmi Panse, and Uday Ved – and a Non-Executive Director, Vibhav Kapoor. IFIN’s Managing Director & Chief Executive Officer, Ramesh C Bawa, also stepped down.
IL&FS management has claimed that around ₹10,000 crore of the group’s liquidity is stuck in claims and termination payments.
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