The sudden downgrade of blue-chip infrastructure financier IL&FS has caught the company’s bondholders on tenterhooks who are now looking forward to its board meeting scheduled for September 15, which will be attended by all the company’s major shareholders.
The sudden downgrade of blue-chip infrastructure financier IL&FS has caught the company’s bondholders on tenterhooks who are now looking forward to its board meeting scheduled for September 15, which will be attended by all the company’s major shareholders. Facing a spate of ratings downgrades over the last month, IL&FS owes over Rs 600 crore in debt repayments for various bond issues maturing in the next 20 days.
IL&FS needs to repay Rs 617 crore by the end of this month. Of this, LIC Mutual Fund is owed Rs 493 crore in three installments by its subsidiary, IL&FS Financial Services (IFIN) and IL&FS Securities Services, starting September 18. IFIN also owes Principal Mutual Fund Rs 73.48 crore for bond issues maturing on September 24. The parent firm owes Motilal Oswal and Tata Mutual Fund Rs 24.68 crore each, to be paid on September 26.
Creditors are now looking forward to the company’s board meeting after ratings firm Icra last week downgraded IL&FS’ bonds and long-term loans by at least nine notches. Aashish Somaiyaa, CEO, Motilal Oswal AMC, said the move came as a shock to all stakeholders. He said, “We are responsible for doing our homework and I wouldn’t shirk that responsibility. However, we do look at what the ratings agencies have to say and to that extent, it was quite a surprise”.
The CEO of another asset management company added that bond investors in IL&FS have no option but to wait for the company to mobilise funds either by way of equity or by selling their assets. The beleaguered company is also facing insolvency petitions against its engineering subsidiary IL&FS Engineering & Construction Company (IECCL) at the National Company Law Tribunal (NCLT) from three of its vendors for defaulting on payments related to construction activities. On Wednesday, shares of IL&FS Engineering closed down 7.7% at a record low of Rs 13.25.
Also on Wednesday, IECCL said CARE Ratings had withdrawn the A1+ rating for IECCL’s proposed bond issue of Rs 100 crore as the company had not been able to mobilise the funds. On Tuesday, India Ratings (Ind-Ra), the Indian arm of Fitch Ratings, also downgraded about Rs 11,000- crore of short and long-term debt by IL&FS Financial Services, citing a liquidity crunch and challenges in meeting immediate debt liabilities.
Ind-Ra also said IL&FS may need to expedite the sale of its assets which may result in lower realisation on its investments, leading to the need for immediate injection of equity. According to sources, IL&FS was planning a fire sale earlier but abandoned the plan at the behest of Life Insurance Corporation of India (LIC), its largest shareholder. LIC owns 25.3% stake in IL&FS, followed by Japan’s Orix Corporation (23.5%), Abu Dhabi Investment Authority (12.56%), HDFC (9%), Central Bank of India (7.67%) and State Bank of India (6.4%).