Crisis-ridden IL&FS under regulatory scanner for alleged corporate governance, disclosure lapses

By: | Published: September 18, 2018 8:01 PM

Crisis-ridden infrastructure conglomerate IL&FS group, once hailed as a pioneer of public-private partnership, has come under the scanner of multiple regulators, including Sebi, for alleged defaults related to financial disclosures and corporate governance, officials said.

IL&FS, Corporate Affairs Ministry, Finance MinisTry, Reserve Bank, SEBI, banking industryBesides, the role of some rating agencies is also being looked into for possible lapses on their part as mutual funds have had a huge exposure to various debt securities of the group, officials said.

Crisis-ridden infrastructure conglomerate IL&FS group, once hailed as a pioneer of public-private partnership, has come under the scanner of multiple regulators, including Sebi, for alleged defaults related to financial disclosures and corporate governance, officials said. Reeling under a huge outstanding debt burden, the group has seen its various long-term and short-term borrowing programmes downgraded to “default” or “junk” grades by credit rating agencies, even as the regulators are also probing alleged delay in disclosure about certain loan defaults.

Besides, the role of some rating agencies is also being looked into for possible lapses on their part as mutual funds have had a huge exposure to various debt securities of the group, officials said. Among others, capital markets regulator Sebi, the Reserve Bank, the Corporate Affairs Ministry and the Finance Ministry have received complaints about alleged wrongdoings at Infrastructure Leasing & Financial Services Ltd (IL&FS) and its various group entities, including the listed ones.

Various regulators and agencies are looking in detail into these complaints and other ongoing issues relating to the IL&FS group given its systemic importance to the infrastructure sector, to the banking industry and to various participants of capital markets, as also to minority and majority shareholders, officials said.

While stock exchanges have been seeking clarification from listed entities of the group, which have seen a huge plunge in their share prices, most of them have replied saying the issues pertain to their promoter and not to the specific company and any decline in share price is beyond their control.

Sebi is particularly looking into the matter with regard to the exposure of mutual funds and about the role of rating agencies. Sebi and other agencies are also looking into alleged corporate governance and disclosure-related lapses at various group firms, officials said.
At a press conference in Mumbai Tuesday, Sebi Chairman Ajay Tyagi said the regulator is looking into the issue with regard to rating agencies and mutual funds, which are regulated by it, though he refused to comment on IL&FS as such.

IL&FS, which is credited for building some major infrastructure projects in the country is sitting on a over a debt pile of Rs 91,000 crore, out of which Rs 57,000 crore are bank loans most of which are from state-run banks, as per brokerage reports. As of March 2018, LIC and Orix Corporation of Japan were the largest shareholders of IL&FS with 25.34 and 23.54 per cent respectively. Abu Dhabi Investment Authority, HDFC, Central Bank of India and SBI held 12.56 per cent, 9.02 per cent, 7.67 per cent and 6.42 per cent, respectively.

The group is said to have sought interim assistance from its government-run shareholders LIC and SBI, but opposition has come from several quarters for any bailout with the public money managed by these marquee public institutions. Officials said the RBI has already cautioned IL&FS group against circulating funding and had asked it to reduce intra-group exposure, while various issues have been flagged by the group’s auditors as well in the recent past.

Domestic rating agency Icra Monday junked short-term and long-term borrowing programmes worth over Rs 12,000 crore of the group and an arm, and removed all group entities from its rating watch. This was the second successive downgrading to junk status by ICRA in a fortnight for the group. The infrastructure development and finance group has been facing liquidity issues for some time and defaulted on a Rs 1,000 crore debt from Sidbi earlier this month, followed by further commercial paper and inter-corporate deposit defaults.

ICRA said its rating revision followed recent irregularities in debt servicing by the company, challenging liquidity position at group level, delay in raising funds from promoters, deterioration in credit profile of key investee companies and sizeable debt repayment obligations.

The group had planned to raise Rs 4,500 crore through issue of shares and Rs 3,500 crore as long-term credit from its shareholders. But these plans are yet to be finalised and an emergency board meeting last Saturday failed to secure immediate liquidity support.
Last week, the group had claimed in a letter to employees that if the Rs 16,000 crore of its funds stuck with concession authorities were released on time, it wouldn’t have landed in the mess it is currently in.

While IL&FS Transport Network, the holding firm of the group’s road assets, has nearly Rs 35,000 crore consolidated debt, IL&FS Financial Services has Rs 17,000 crore of debt, which sits as standard asset for most banks, according to a Nomura India report.
Late last month, IL&FS had said it was planning to divest assets to pare its debt by up to Rs 30,000 crore over the next 18 months and has identified 25 projects for the same and claimed to have received offers for 14 of them.

At the September 15 board meeting, IL&FS had appointed ex-LIC chairman SB Mathur as new non-executive chairman after LIC managing director Hemant Bhargava’s decided to step down from that role. IL&FS was incorporated in 1987, initially promoted by the Central Bank of India, Housing Development Finance Corporation and Unit Trust of India. Over years, it broad-based the shareholding and inducted institutional shareholders including SBI, LIC, Orix and Abu Dhabi Investment Authority.

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