India Ratings and Research (Ind-Ra) on Tuesday downgraded about Rs 11,000 crore of short and long-term debt by IL&FS, citing liquidity crunch and challenges in meeting immediate debt liabilities. The ratings firm downgraded a long-term debt facility of rS 9,360 crore, short-term debt of Rs 1,225 crore, subordinated debt of Rs 100 crore and bank loans of Rs 300 crore. Ind-Ra said IL&FS may need to expedite the sale of its assets, resulting in lower realisation on its investments, leading to a rise in tangible leverage and 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 (LIC), its largest shareholder.
Further, the ratings firm said that IL&FS’ positioning in the infrastructure development space is being tested and may even impact its ability to bid for new projects, unless swiftly remedied. The agency further said the group’s plan to sell its assets could also face challenges “unless shareholder support is demonstrated immediately.”
Ind-Ra also said the downgrade reflects the liquidity crunch at IL&FS and its financing subsidiary IL&FS Financial Services, which poses challenges regarding the companies’ ability to meet their immediate debt liabilities. “This is more so because of the inconclusive shareholders meeting held on September 7, which was adjourned to September 15,” the firm said.
While IL&FS’ roads development arm IL&FS Transportation Networks (ITNL) is planning to raise around Rs 8,000 crore in a combination of equity and debt as well as by selling a chunk of its infrastructure assets, Ind-Ra said its timeliness is critical and that the company requires immediate liquidity support so as to honour its debt repayment obligations in a timely manner.
At its annual general meeting last week, K Ramchand, MD at ITNL, told shareholders that ITNL is planning to terminate some concessions, sell assets and raise money from shareholders. “We will focus on advisory and on EPC,” he said. Ramchand added that ITNL’s debt would be reduced to about Rs 2,000-3,000 crore in the next six-nine months from close to Rs 40,000 crore at present, after the asset sale exercise.
According to sources, ITNL is planning to terminate six concessions, including the metro rail project in Gurugram, to cut debt by as much Rs 5,000 crore. In addition, ITNL has initiated claims worth as much as Rs 10,000 crore with multiple government authorities for cost overruns.
Ramchand said the claims are basically from the increase in costs due to failures on the part of the authorities to provide right of way (RoW) or land for the construction of projects and their requisite approvals. ITNL has 28 road projects operating as public-private partnerships (PPP). Of these, 11 are annuity projects while the rest are toll projects.
ITNL is also planning to raise Rs 3,000 crore from shareholders via a rights issue while its parent company, IL&FS, has also planned a rights issue of Rs 4,500 crore. The IL&FS board is set to meet on Saturday this week (September 15) to approve its fund-raising and asset sale plans.