Substantial recovery likely against IL&FS Rs 94k cr debt: Injeti Srinivas

With multi-pronged strategies in place for IL&FS resolution, the government expects "substantial recovery" against the group's Rs 94,000 crore external debt and the recovered amount could be much more than the sum realised under the insolvency law so far.

Apart from the exercise of recasting the financial statements, an SFIO probe report regarding an IL&FS subsidiary is nearing completion and some matters are before the National Company Law Appellate Tribunal (NCLAT) and the Bombay High Court.

In late 2018, the problems at IL&FS came to light after some group companies defaulted on loan repayments resulting in concerns about overall impact on the financial system. The group's board was superseded by the corporate affairs ministry and various entities, including auditors and independent directors, came under the regulatory scanner for the alleged lapses.

While noting that the maze of transactions between hundreds of subsidiaries within the IL&FS group created a veil that concealed the real picture, Corporate Affairs Secretary Injeti Srinivas said timely intervention of the government prevented value destruction.

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"Broadly, if you look at, against the Rs 94,000 crore external debt (around Rs 73,000 crore secured and Rs 21,000 crore unsecured), we expect substantial recovery. Far more than the average 43 per cent recovery we have had from the IBC (Insolvency and Bankruptcy Code) so far," Srinivas told PTI.

The NCLAT has approved the entire proposal of the government, which is in the "final stages of resolution".

"We had hoped that bulk of the resolution would be over by August '20. But now due to COVID-19, that is likely to be delayed by a few months. The government has proposed a comprehensive resolution framework balancing stakeholders interests (banks, provident funds, pension funds and others)," the secretary said.

According to him, recovery is being mentioned in terms of settlement of the external debt and involves multi-pronged strategies, including transfer of entity as a going concern, asset monetisation, creating InvITs (Infrastructure Investment Trusts) and debt restructuring.

"The new board has done a good job. Of course, things will have to be expedited. We have to work against all odds and ensure that things are brought to a closure as soon as we can," he said.

Around close to Rs 12,000 crore debt against completed road projects, where toll is being collected, is being converted into an InVIT. This means that there would be no haircut for banks because these are all operating entities with underlying cash-flows.

"But there would be some compromise in terms of interest rate and duration. There can be early exit also once the secondary market develops," he noted.

Reiterating that "the elephant" had gone amock in the IL&FS case, Srinivas said it was strange that nobody saw it, whether it was statutory auditors, independent directors, credit rating agencies or others.

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"There is absolutely no doubt that the management was falsifying their financial position as well as performance with a view to inducing investments from mutual funds, pension funds and the ordinary and gullible investors... The SFIO has already submitted its report on IFIN and the report on ITNL is nearing completion," he said.

As per the financial statements for FY19 finalised by the newly-appointed board, IL&FS reported a staggering standalone net loss of around Rs 22,500 crore.

"Around Rs 20,000 crore of so called intangible assets had to be written off, as they were nothing but falsely projected... The exercise of recasting the financial statements is also going on. Once done, it will make things totally clear," he added.

On the issue of whether the statutory auditors were part of the conspiracy or not, Srinivas said the matter is subjudice.

In terms of recovery in the IL&FS matter, Orix took over the entire debt of around Rs 4,500 crore related to wind mills and gave around Rs 600 crore towards equity consideration.

Education arm's entire loan amounting to around Rs 600 crore is being taken over by the successful bidder and small amount of equity consideration is also being offered. Similarly, in the case of GIFT City, the entire debt of Rs 12,00 crore is being taken over by the Gujarat government with equity value of Rs 32.5 crore for IL&FS, Srinivas said.

For five road assets having combined financial debt of Rs 9,500 crore, bids have been received and are undergoing approval process.

"The Paradeep Refinery Water pipeline and Mangalore SEZ are under negotiation with ONGC. Similarly, the water project in Tamil Nadu is under negotiation with the Government of Tamil Nadu.

"For the Stadium in Kerala the bidding process has been completed and negotiations are underway with the highest bidder. Over 40 plus solvent assets with combined debt of Rs 7,200 crore are servicing all obligations," Srinivas said.

With respect to NHAI projects that remained incomplete due to the concessionaire's fault, it can terminate the contract without any compensation to the contractor.

Following continuous engagement with NHAI, Srinivas said a new framework has been evolved under which NHAI has agreed for an independent audit to assess the amount invested in the project in order to give a fair compensation to the contractor in return of getting unencumbered physical possession of the assets, which can then be rebid.

"This arrangement protects the value. Firstly, it is a public asset, which will now be completed through rebidding. Secondly, the outgoing contractor gets compensated on the basis on amount invested and current valuation of the assets in question. IL&FS would be getting close to Rs 4,000 crore by virtue of this arrangement," he said.

The thermal power plant at Cuddalore, Tamil Nadu, is undergoing debt restructuring. This project is expected to get bids as the 1,200 MW facility is fully operational and the power purchase agreement is also intact.

IL&FS gets approval for claims towards Rs 2,700 crore stalled road projects

Crisis-hit IL&FS Group has received approvals from various government authorities for claims worth about Rs 2,700 crore towards stuck or incomplete road projects, officials said.

The NHAI Conciliation Committee recently approved a claim for approximately Rs 707 crore for the ILFS-Fagne Songadh Expressway Limited project (in Gujarat-Maharashtra border area), while the committee had earlier approved claims of Rs 902 crore for the Khed Sinnar Expressway project (in Maharashtra).

Other projects for which claims have been approved include Kiratpur Ner Chowk Expressway Limited for Rs 672 crore (in Himachal Pradesh) and Jorbat Shillong Expressway Limited for Rs 252 crore (Meghalaya).

Additionally, the Ministry of Road, Transport and Highways had cleared claims of ITNL Road Infrastructure Development Company (IRIDCL) for Rs 144 crore.

In case of both Jorbat Shillong and IRIDCL projects, the settlement agreements have been duly signed with authorities, officials said.

When contacted, an IL&FS spokesperson declined to comment.

In October 2018, the government had seized control of the debt-trapped company and superseded its board by appointing a new one, led by eminent banker Uday Kotak as its chairman.

The new board, as part of the overall resolution process for the IL&FS Group, has sold a number of assets to clear dues and debt.

Officials said these initiatives of engaging with various authorities such as the Ministry, NHAI and NHIDCL for settlement of claims relating to incomplete and terminated projects and for compensation claims filed in respect of certain operational projects, is part of the new board's resolution process.

The ministry in March 2019 had formulated guidelines for resolution of stuck projects (mainly incomplete projects) and provided parameters for authorities to foreclose the concession agreement and pay compensation being the lower of value of work done and 90 per cent of debt due.

Cash-strapped Infrastructure Leasing & Financial Services (IL&FS) in December reported a standalone net loss of Rs 22,527 crore for the fiscal ended March 2019. It reported revenue of Rs 824 crore, massively down from Rs 1,734 crore in the previous year.

This was the first earnings announcement after the government sacked its board in October last year.

As of March 31, 2019, total assets stood at Rs 4,148 crore, a pale shadow of Rs 23,868 crore year-ago, while its liabilities rose to Rs 21,083 crore from Rs 18,276 crore in the previous fiscal.

The company had said at that time that the board gas adopted prudent provisioning on loans/impairment for investments, besides taking a conservative view on fair market value and recovery estimates.

As of October 8, 2018, the group has an external fund based debt of Rs 94,216 crore and an additional non-fund based debt of Rs 5,139 crore.

No say for lenders in distribution of sale proceeds: IL&FS to NCLAT

The board of Infrastructure Leasing and Financial Services (IL&FS) has submitted a fresh affidavit to the National Company Law Appellate Tribunal (NCLAT), asking the tribunal to direct all financial creditors of the relevant IL&FS group entities, including group lenders, to be part of the committee of creditors.

IL&FS added the creditors’ committee should only be approached for its vote on the highest bidder of an asset but should have no say in the distribution framework of sale proceeds.

“.. approval of creditors’ committee of the relevant IL&FS group company will not be required for distribution which will be as per the revised distribution framework or for effecting the settlement/termination agreement with the authorities or distribution of the settlement/termination claims,” said the new board in its prayers to the NCLAT.

The new board has also suggested a new distribution framework for creditors of the company. This will be done so that all costs related to the resolution process are settled followed by distributing average liquidation value to the creditors. Any remaining proceeds will subsequently go to the creditors on a pro-rata basis.

According to the new distribution network proposed by the board, all resolution process costs incurred in the resolution process of the relevant group entity of IL&FS have to be settled in full.

These include fees payable to the financial and transaction advisors, legal counsels, resolution consultant, claims management consultant, independent valuers along with costs for issuing advertisements and conducting audits.

After settling the resolution process cost fully, distribution of sale proceeds will then go to creditors of the relevant group company. This will cover the average liquidation value in accordance with Section 53 of the IBC.

Then, the remaining sale proceeds will be distributed pro-rata to each class of creditors of the relevant group company.

It will be adjusted for any recovery made by the relevant creditor.

“The new board believes that the revised distribution framework provides a fair and equitable formula for distribution of sale proceeds. This caters to the interests of various classes of creditors, including secured financial creditors, given that they are being provided with protection of the average liquidation value,” the IL&FS board said in the affidavit.

“The Revised Distribution Framework also protects the interests of other sets of creditors, given the role of every creditor (howsoever ranked) in ensuring an optimal resolution for the IL&FS group,” the board said.

IL&FS has a total debt of Rs 94,215 crore of which the four holding companies of the group — IL&FS, IL&FS Financial Services (IFIN), IL&FS Transportation Networks (ITNL), IL&FS Energy Development Company (IEDCL) — have a consolidated debt of Rs 48,000 crore.

This comprises 51 per cent of the total group’s debt.

Further, of the Rs 94,000 crore debt, public fund creditors – entities such as pension funds, employee welfare funds, provident funds, gratuity funds and superannuation funds – have an exposure of Rs 10,173 crore, or 10.79 per cent of the total debt. Scheduled commercial banks have an exposure of Rs 44,075 crore.

IL&FS is a test case for group resolution, says Uday Kotak

The new board of Infrastructure Leasing and Financial Services (IL&FS) expects to recover close to 50 per cent of the firm’s overall debt, which stands at above Rs 94,000 crore.

It also expects to complete the resolution process by July 2020 by paring a significant portion of the debt.

The board, led by Uday Kotak, managing director and chief executive officer of Kotak Mahindra Bank, has taken a series of steps including “resolution, restructuring, and recovery” to pare debt in the absence of any requisite legal framework for group-level resolution under the Insolvency and Bankruptcy Code (IBC).

Kotak, in his address to shareholders of IL&FS in the annual general meeting on Tuesday, said: “IL&FS Group had emerged a test case on group-wide resolution of stressed assets.”

The IL&FS group’s stake in seven wind power special purpose vehicles (SPVs) has been sold for nearly Rs 4,300 crore, covering 100 per cent of entity-level debt and including equity value of nearly Rs 590 crore.

Further, it has received binding bids for a Chinese road asset, which will resolve nearly Rs 1,600 crore of debt and an add Rs 980 crore to the shareholding entity’s equity value.

In addition, binding bids have come for 10 road assets. Five assets — with combined financial debt of Rs 9,500 crore — have been referred to the respective creditor committees for the next step.

The board is also setting up an Infrastructure Investment Trust (InvIT) for nine road assets, with total financial debt of more than Rs 11,000 crore. It has also received confirmation from the Gujarat government regarding purchase of its stake in GIFTCL, which will ease debt by Rs 1,200 crore.

It has also sold real estate assets that it held, for Rs 3,500 crore, and accumulated a cash reserve of Rs 6,500 crore with nearly 87 per cent of the cash reserve parked in instruments like fixed deposits and money market mutual funds.

Finally, the board reduced the wage bill by 48 per cent and operating expenses by 42 per cent (annualised basis), between October 31, 2018 and October 31, 2019. Of the 55 entities classified as “green”, 40 have been regularly servicing debt to the tune of Rs 7,200 crore.

The board is in talks with concession authorities to expedite the release of claims in excess of Rs 5,000 crore, filed by IL&FS Transportation Networks.

IFIN reports net loss of Rs 13,272 cr in FY19, net revenue down by 87.22%

The financial services arm of the beleaguered Infrastructure Leasing & Financial Services — IL&FS Financial Services (IFIN) — reported a staggering net loss of Rs 13,272 crore in 2018-19 (FY19), compared to a net profit of Rs 9.5 crore in the preceding financial year (2017-18, or FY18), revealed the annual report of IFIN for FY19.

The net revenue of the company also nosedived 87.22 per cent in FY19 to Rs 288.88 crore, from Rs 2261.93 crore in FY18. Furthermore, the company’s exposure to loans — marked non-performing — is to the tune of Rs12,429 crore.

As of March 2019, IFIN has a loan book of Rs 12,945 crore, of which 96 per cent of the loans are non-performing. The under-performing loans are Rs 35.12 crore, and standard loans are Rs 480.44 crore.

The company’s liabilities as of end-March 2019 are Rs 16,635.72 crore. IFIN has been classified ‘red’ by the board of IL&FS; it is not in a position to meet its debt obligations —secured or unsecured.

The company’s total borrowings as of March 2019 from various avenues, such as debt securities, bank loans, commercial papers, and intercorporate deposits, stood at Rs 14,916 crore.

Furthermore for FY19, the board of IFIN factored in losses vis-à-vis balance of loans, receivables, investments, and other financial assets aggregating to Rs 4,798 crore, Rs 79.8 crore, Rs 252.8 crore, and Rs 405.1 crore, respectively, and also recorded a net loss on fair value change of Rs 283.7 crore on financial assets.

The audit report by the statutory auditors of IFIN — Mukund M Chitale & Co. — said with huge losses and liabilities, along with consistent rating downgrades, the company’s ability to raise funds has been substantially impaired, with normal business operations being curtailed.

Also, the company has breached its conditions for holding a certificate of registration as a non-banking financial company (NBFC), issued by the Reserve Bank of India (RBI).

IFIN has breached the minimum capital ratio of Tier 1 and Tier 2 capital. The company’s capital adequacy ratio is -520.29 per cent. According to the RBI norms for NBFCs, the company is required to maintain regulated capital adequacy ratio of minimum 15 per cent, with minimum Tier 1 capital of 10 per cent. Tier 1 capital is also referred to as the ‘net-owned fund’ and IFIN has reported negative net-owned funds for FY19, although according to a RBI mandate, a company is required to have a net-owned fund of Rs 2 crore to hold an NBFC licence.

Hence, the statutory auditors were of the opinion that given the existence of a material uncertainty that may cast significant doubt on the company’s ability to continue as a going concern, they are unable to comment on whether the company will be able to continue as a ‘going concern’.

In FY19, the Serious Fraud Investigation Office (SFIO) conducted investigations on the affairs of the company and found that the erstwhile auditors of IFIN — Deloitte Haskins & Sells, BSR & Associates — were aware that IFIN was lending to defaulting borrowers through group companies, so that they could suppress their non-performing assets and not provide for bad debt. It alleged that the auditors failed to verify the end-use of bank finances and money raised through non-convertible debentures, despite it being a regulatory mandate.

The SFIO complaint also said that the auditors falsified books of accounts from 2013-14 to FY18 and did not report the negative net-owned fund, as well as its negative capital to risk (weighted) assets ratio. After the report, the National Company Law Tribunal permitted reopening of books of accounts and recasting of the financial statements of IFIN.

IL&FS case: Sebi imposes Rs 25 lakh fine on rating agencies ICRA, CARE

The Securities and Exchange Board of India (Sebi) has slapped a penalty of ~25 lakh each on credit rating agencies CARE and ICRA for violation of the Sebi (Credit Rating Agencies) Regulations pertaining to assigning of rating to various non-convertible debentures (NCDs) of IL&FS.

In its order, Sebi said the rating agencies had failed to exercise their duty to investors at large and did not downgrade the ratings of NCDs of IL&FS in time despite having knowledge of the deteriorating financials of the issuer. The regulator has given 45 days for the payment of penalty, which was levied under Section 15HB of the Sebi Act.

IL&FS had defaulted on its obligations in respect of the commercial papers and inter-corporate deposits, due for payment on September 14, 2018, and rated by the two agencies. It also defaulted in interest payments on its NCDs on September 17, 21, 26 and 29.

The rating agencies “should have anticipated the mounting credit risks, the stressed balance sheet position of IL&FS and placed the ratings accordingly to alert the market”, the Sebi order observed.

Sebi said while there was no allegation of mala fide on the part of the rating agencies, their failure was serious considering the responsibility bestowed upon them by investors and regulators.

Former IL&FS directors got lucrative paychecks even as firm collapsed

While Infrastructure Leasing and Financial Services (IL&FS) went belly up in September 2018, its erstwhile directors were earning large sums of money as remuneration, the company’s 2018-19 annual report shows.

Even as the government replaced the entire board in October 2018, the former directors earned handsome salaries for the first half of financial year 2018-19 (FY19).

Hari Sankaran, who served as vice-chairman and managing director (MD) of IL&FS and as a non-executive director of the company till September 2018, took home Rs 6.38 crore as remuneration. Former chairman Ravi Parathasarthy took home about Rs 4 crore as a non-executive director from April 1, 2018, to July 21, 2018, when he retired.

Arun K Saha, erstwhile joint MD & chief executive officer (CEO), took home a hefty remuneration of Rs 6.88 crore for FY19. He was also a whole-time director of the subsidiaries and group companies.

Even erstwhile independent directors were being paid substantial remuneration including commission. The median annual salary of IL&FS employees was Rs 13.1 lakh.

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Some of the directors appointed by the National Company Law Tribunal have taken no remuneration, while for other directors it ranges between Rs 50,000 and Rs 13.7 lakh for the October 2018-March 2019 period.

After the beleaguered firm defaulted on its debt obligations causing a liquidity squeeze in the non-banking financial sector, the central government replaced the erstwhile board with a new board led by Uday Kotak, the managing director and chief executive officer of Kotak Mahindra Bank. He serves as non-executive chairman of IL&FS.

IL&FS has posted a staggering net loss of Rs 22,527 crore in 2018-19 on a standalone basis, as against a net profit of Rs 333 crore in the previous year.

The company’s revenue declined 52.5 per cent to Rs 824 crore in FY19 from Rs 1,734 crore in FY18. Similarly, its assets declined 81.5 per cent to Rs 4,148 crore compared to Rs 23,868 crore in 2017-18. Liabilities of the company increased 15.3 per cent in FY19 to Rs 21,083 crore. In FY18, these stood at Rs 18,276 crore.

The company also reported a negative net worth of Rs 16,935 crore in FY19, compared to a net worth of ~5,592 crore in the previous year. The entity, on a consolidated level, has debt to the tune of over Rs 94,000 crore.

Experts raise alarm bells on talent flight amid crackdown on audit firms

While few are willing to speak openly against actions taken by regulatory and enforcement agencies against auditors for failing to flag financing bungling, senior executives at major audit firms said it was wrong at times to ban an entire audit network for alleged lapses by one or two individuals.

On the other hand, officials at regulatory and enforcement agencies said the audit firms tend to put the blame on individuals after finding themselves in the dock for their alleged role in frauds.

The officials have often pointed out that auditors are supposed to be the conscience-keepers of a company and it is their duty to ring the alarm bells even at the slightest hint of a financial wrongdoing.

In recent times, there has been a spate of actions against auditors, including against PwC in the Satyam case and against Deloitte and BSR in the IL&FS matter.

Markets watchdog Sebi has moved the Supreme Court against the Securities Appellate Tribunal's ruling that had quashed a two-year ban on PwC in connection with the Rs 7,800-crore Satyam scam.

In the IL&FS case, the Bombay High Court has granted a stay on NCLT proceedings against the company's erstwhile auditors, while some auditors were recently arrested by the Economic Offences Wing of the Mumbai Police in the NSEL matter, though they were released subsequently on bail.

Some auditors, including in the case of IL&FS matter, have come under the scanner of the Serious Fraud Investigation Office (SFIO) while National Financial Reporting Authority (NFRA) is looking into alleged accounting lapses at Infosys.

"There are fewer people now who are excited to join the audit profession, primarily due to a narrative that has got built around it in the recent times," said one of the partners at a leading audit firm, citing actions taken by regulatory and enforcement agencies and the judiciary.

The Institute of Chartered Accountants of India's (ICAI's) former central council member Vijay Gupta said strict actions taken so far against auditors have meant that they have to undergo unwarranted scrutiny by authorities all the time, thereby constantly being under the scanner.

This is dissuading the new talent from pursuing auditing as a profession, he added.

"Any young talent passing out from a professional course prefers to have freedom to practice his or her ideas in real life so as to explore one's self professionally. Sadly, auditing as a choice of profession is facing more roadblocks in the present scenario," SHRM (Society for Human Resource Management) India CEO Achal Khanna said.

The head of a leading executive search firm said new talent is more excited to join consulting roles than becoming part of an audit firm.

"Liability mechanism for auditors is an area that needs to be duly addressed. Drastic actions are being taken against auditors even before being proven guilty," said an auditor at a leading audit firm.

He questioned the rationale behind banning an entire audit firm, saying such moves have a larger impact on the industry and on people working in such organisations.

According to him, such actions would keep high-quality talent away from the audit profession and create an atmosphere of fear, trigger a spate of resignations by auditors and thus might impact investors in a big way.

"Lack of quality talent will create further challenges for the audit profession in the country as the quality of audit would suffer, impacting the output around which major investment decisions are taken," private equity investor Sandeep Parwal said.

Experts opine that availability of trustworthy financial information on performance of companies is important for proper functioning of a market economy, but the entire auditing system has got into a precarious situation as questions are being raised around integrity of auditors.

Serious concerns arise if auditors' independence is compromised or when trust reposed in them gets betrayed as independent audits are fundamental to taking informed and correct investment decisions.

Generally, auditing is a lucrative profession with high-salaried positions. The duty of auditors are discharged by chartered accountants.

Set up under an Act of Parliament, the ICAI is the apex body of chartered accountants.

"Founded with about 1,700 members, the Institute has today 2,91,698 members as on March 31, 2019," as per the institute's annual report for 2018-19.

The present economic crisis is worse than 2008 recession: Goldman Sachs

The consumption slump, a major challenge afflicting the economy, cannot be attributed to the NBFC crisis as it predates the first default by infra lender IL&FS, says a brokerage, which has also slashed growth forecast to 6 percent with a downward bias.

Many people attribute the deepening slowdown in consumption to the NBFC crisis that began in September 2018 when IL&FS went belly up following which consumption financing--a forte of shadow banks, stopped with a chill in disbursements by these players.

According to Prachi Mishra, the chief economist at Wall Street brokerage Goldman Sachs, her analysis indicates that consumption has been falling since January 2018, which is much before the end August 2018 default by IL&FS which triggered the liquidity crisis for NBFCs.

She said the fall in consumption is responsible for a third of the overall dip in overall growth, with the global slowdown coupled with funding constraints.

"There is a slowdown and the growth numbers have fallen by 2 percentage points," Mishra said, speaking at an event by The Economist.

However, she expects growth to tick up in the second half, courtesy the easy money policy of the RBI which has slashed the key policy rates by a record five times or by 135 bps to a decadal low of 5.15 percent since February and also the push to sentiment from the growth enhancing measures like the recent massive tax giveaways to corporates.

Mishra said investments and exports have been sliding for a long time, but it is the steep consumption slump which has is the new pain area.

"The present slowdown is protracted and has lasted for over 20 months now," Mishra said, adding this is different from the growth headwinds like demonetisation or even the 2008 financial crisis, which were temporary in nature.

The comments come amid growth slowing down to a six- year low of 5 percent in the June quarter, which has been followed by a rash of downward revision in growth estimates to the tune of 70-110 bps, including by the RBI which now expects the economy to expand by 6.1 percent and also by multilateral agencies like IMF and the World Bank.

Research by the brokerage points out that 40 percent of the pain is coming from the slump in global trade, over 30 percent from consumption slowdown and the rest is due to the severe funding constraints.

Addressing the same event, Srei Infra Finance chairman Hemant Kanoria said there is a need for the economy not to be "messed" around for political gains.

Kanoria said his company has cut down on disbursements and chosen to focus on holding on to liquidity for the rainy day, which has resulted in a sharp 30 percent dip in new construction equipment hiring.

Highlighting that this is a broader trend among the shadow banks, Mishra said NBFCs' credit growth has dipped to 13-14 percent now as against a growth of 24 percent till the recent past and blamed it on the slowing demand for loans, the increased regulatory pressures and a risk aversion.

NBFCs are show shy of lending that they are preferring to invest in government bonds rather than making loans, she said, adding this aspect needs to be broken.

IL&FS approaches NCLAT seeking release of Rs 145 cr held by Gujarat discom

Debt-ridden firm IL&FS has approached the National Company Law Appellate Tribunal (NCLAT) seeking the release of around Rs 145 crore held by Gujarat Urja Vikas Nigam.

A two-member NCLAT bench headed by Chairperson Justice S J Mukhopadhaya has issued notice to the Gujarat Urja Vikas Nigam over the IL&FS plea.

NCLAT has directed to list the matter for next hearing on October 15.

According to senior advocate Ramji Srinivasan appearing for IL&FS, the matter relates to payment of five IL&FS wind energy companies.

IL&FS had approached Gujarat Energy Regulatory Commission regarding this but could not get relief there.

IL&FS Group, which has a total debt of above Rs 90,000 crore, is going through debt resolution plan.

The entire resolution process is based on the principles enunciated in the Insolvency and Bankruptcy Code and is supervised by Justice D K Jain.

Lenders approve Rs 5071 crore debt restructuring plan of three IL&FS firms

The lenders to debt-laden Infrastructure Leasing & Financial Services (IL&FS) have signed binding term sheets to restructure debt worth Rs 5,071 crore of three group companies, Moradabad Bareilly Expressway Limited, Jharkhand Road Projects, and West Gujarat Expressway Limited. The companies will now be moved to green category from amber, as per the directions of the National Company Law Appellate Tribunal (NCLAT) and thus will be able to service their debts to all secured and unsecured lenders.

According to the binding term sheet which involves a revised proposal for debt-restructuring, there will be certain concessions and modification of terms of financial debt availed by these entities from lenders. This includes release of cash flow from existing accounts to service financial and operational creditors, reduction in debt service coverage ratio requirement, and revision in interest rate charged to the entity, the counsel for the new board of IL&FS told the NCLAT on Thursday.

So far, the new board has classified 150 entities into green (55), red (82) and amber (13). The IL&FS group has 302 entities, of which 169 are in India and the rest 133 are overseas. The collective debt of the green entities, according to the fifth progress report, was more than Rs 11,000 crore. The amber and red entities have a debt of Rs 16,372 crore and Rs 61,375 crore, respectively.

A plan to further reclassify another 9 companies in the amber category is also in the works, said the counsel for the new board. In some of these cases, there have been problems where lenders have not come to an agreement either on the extent of haircut, or on the reduction in interest rate. Some lenders have also raised objections to the repayment schedule proposed in the plan, the counsel informed NCLAT.

IL&FS fallout: Mother Dairy loses CARE's triple-A credit rating

Mother Dairy Fruit & Vegetable (MDFVPL), a unit of National Dairy Development Board, has lost its ‘AAA’ credit rating because of the hit it has taken for provisions in its account book for deposits placed with default-hit IL&FS. It had to make a impairment provision of Rs 190.85 crore from the investments in IL&FS in the form of unsecured short-term inter-corporate deposits. Further in 2018-19, it reported a negative profit after taxes, of Rs 91.8 crore due to the burden of provisions.

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The previous year had shown a (positive) PAT of nearly Rs 37 crore. Taking this into account, CARE Ratings has revised its grading to ‘AA+’. The revision factors in the weakness in MDFVPL’s internal control systems which led to the IL&FS deposit, it said. The amount had to be fully provided for in the accounts for FY19 on the default by IL&FS, leading to a 35 per cent erosion of its net worth, CARE said.

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IL&FS receives 14 binding bids from multiple bidders for 10 road assets

Infrastructure Leasing and Financial Services (IL&FS) has received binding bids from multiple bidders for 10 of its road assets under the roads transportation vertical.

IL&FS has received 14 binding bids for its road assets across three categories — green, amber and red. These 10 road assets accounted for 19 per cent of the total debt of the beleaguered group, with debt to the tune of Rs 17,700 crore.

Jharkhand Infrastructure Implementation Company (JIICL) is the only green asset that has received a binding bid.

Among the amber assets, five road projects that have received bids include Jharkhand Road Projects Implementation Company (JRPICL), Moradabad Bareily Expressway (MBEL), Chenani Nashri Tunnelway (CNTL), Hazaribagh Ranchi Expressway (HREL) and Jorabat Shillong Expressway (JSEL).

Also, JRPICL and MBEL are in the process of being re-classified from amber to green on the basis of the restructuring proposals agreed with its lenders, IL&FS said in a statement.

IL&FS receives 14 binding bids from multiple bidders for 10 road assets

Baleshwar Kharagppur Expressway (BKEL), Pune Sholapur Road Development Company (PSRDCL), Road Infrastructure Development Company of Rajasthan (RIDCOR) and Sikar Bikaner Highway (SBHL) are among the four red category road assets that have received binding bids.

Moreover, the board, headed by Uday Kotak, managing director and CEO of Kotak Mahindra Bank, as a part of the overall resolution process for the IL&FS group, initiated sale of a number of other group assets. This seeks to address a significant portion of the group’s debt.

“The sale processes for these assets, including education, waste management, technology, real estate and key international assets, are currently under way and binding financial bids are expected in stages over the next few months,” said IL&FS.

Meanwhile, the National Company Law Tribunal (NCLT) has cleared the sale of seven operating wind energy special purpose vehicles or SPVs of the IL&FS group to ORIX Japan for an equity value of around Rs 593 crore.

ORIX has also agreed to take over the entire SPV debt, totaling around Rs 3,700 crore.

IL&FS payment default case: ED summons Raj Thackeray, Manohar Joshi's son

The Enforcement Directorate (ED) has summoned MNS party chief Raj Thackeray in connection with its money laundering probe in the IL&FS alleged payment default case, officials said Monday.

They said the Maharashtra Navnirman Sena chief has been asked to appear before the investigating officer of the case on August 22.

They added that Unmesh Joshi, son of former state chief minister and Shiv Sena leader Manohar Joshi, has also been summoned in the same case.

Joshi is supposed to appear on Monday or Tuesday, they said.

The agency is probing Thackeray's involvement in the case in connection with the IL&FS group's loan equity investment in a company called Kohinoor CTNL.

The company was promoted by Joshi.

Thackeray and Joshi had jointly bid for some assets after creating a consortium but later the MNS supremo quit.

The ED, it is understood, wants to look into the entire transaction and hence has summoned the two.

The ED had last week filed a charge sheet in the case too.

IL&FS proposes to NCLT sale of wind energy assets to Japan's ORIX

IL&FS has filed a proposal with the National Company Law Tribunal (NCLT) for a final approval to complete the sale of its stake in the wind energy business. “The proposal has been filed before the tribunal after completing binding Share Purchase Agreement with ORIX Corporation and obtaining in-principle approval from all lenders for completing this transaction, subject to NCLT approval,” the company said in a statement. ORIX Corporation of Japan, owner of 49 per cent stake in each of the seven operating wind power plants of the IL&FS Group, had expressed its intent to buy out the remaining 51 per cent stake held by IL&FS in those assets for Rs 4,800 crore.

Govt asks NCLT to freeze assets of IL&FS arm's audit partners Deloitte, BSR

The Ministry of Corporate Affairs (MCA) on Tuesday sought the National Company Law Tribunal’s (NCLT’s) approval to freeze assets, including bank lockers, of Deloitte Haskins & Sells and KPMG-network auditor BSR & Associates, both former auditors of IL&FS Financial Services (IFIN) which have been named in the Serious Fraud Investigation Office (SFIO) complaint.

The tribunal, after hearing the MCA’s argument, adjourned the matter till August 28 as its order permitting the prosecution of the auditors was stayed by the National Company Law Appellate Tribunal (NCLAT). The NCLAT will hear the matter on August 19.

The Mumbai Bench of the NCLT on Tuesday categorically stated that it won’t pass any order in the case until the NCLAT decides on whether permission should be granted to the MCA to prosecute the auditors.

The counsel for the auditors objected to the MCA’s application, saying they were no longer party to the case as the NCLAT had stayed the NCLT order giving permission to the ministry to prosecute them. However, the tribunal observed that the NCLAT while staying the interim order had said it won’t come in the way of the NCLT and the Union of India to proceed with the case in accordance with the law.

The NCLT, Mumbai, in its December 3 order, had barred former IL&FS directors from “creating third-party rights, mortgaging or alienating movable and immovable assets fully or partly owned”. The MCA has prayed to the NCLT to extend the same order to audit firms and their partners named in the SFIO complaint and other individuals.

The MCA said it was necessary to do so to prevent diversion of funds.

However, the MCA said the audit firms could be granted relief so that they could meet their operational costs such as salaries, electricity bills, transportation and rental costs. In the case of partners of the audit firms named in the SFIO complaint, they would be allowed to withdraw a sum of Rs 1 lakh per month.

The MCA has also moved an affidavit in the NCLT, seeking the tribunal’s nod to appoint auditors at Infrastructure Leasing & Financial Services (IL&FS), IFIN and IL&FS Transportation Networks (ITNL).

The MCA said the new board led by Uday Kotak had suggested two accounting firms for the job -- one to do the recasting and the other for auditing the books. 

The case so far

May 30: SFIO alleges auditors were hand in glove with IFIN management in committing fraud

June 10: MCA seeks banning of auditors for five years

June 21: Auditors say NCLT doesn’t have jurisdiction to ban them; MCA moves another application to prosecute them

July 18: NCLT grants permission to MCA to prosecute auditors

July 30: NCLAT stays the order

August 6: MCA seeks freezing of assets of auditors

Another matter concerning the auditors of IFIN is pending in the NCLT wherein the MCA has sought to ban them for five years based on the SFIO investigation for colluding with the erstwhile management of IFIN and not raising red flags despite being aware of the sorry state of the company. The tribunal has reserved its order after hearing the arguments of the MCA and the auditors.

The SFIO, in its complaint, had alleged that the auditors were aware that IFIN was lending to defaulting borrowers through group companies so that it could suppress its non-performing assets and not provide for the bad debt.

The SFIO report also said the auditors failed to verify the end-use of bank finances and money raised through non-convertible debentures (NCDs), despite it being a regulatory requirement.

The SFIO complaint goes on to allege that the auditors falsified IFIN’s financial statements from FY14 to FY18 and did not report the negative net-owned funds, as well as its negative capital to risk (weighted) assets ratio, resulting in loss to those who had invested in the company’s NCDs.

Now,govt wants to freeze accounts of IL&FS auditors, 21 others

In more troubles for the auditors of the crippled IL&FS--Deloitte and BSR, the corporate affairs ministry Tuesday moved the NCLT seeking to freeze their bank accounts along with those of 21 others who are impleaded in the main petition in the one of the largest fraud cases.

This comes even as the NCLT is yet to pronounce its verdict on the ministry plea seeking to ban these auditors for their omissions and commissions in the case for five years.

The ministry counsel said he wants their accounts frozen as an interim measure till the tribunal delivers on its demand to ban these auditors for five years.

Seeking to restrain their activities by freezing their accounts, ministry counsel Sanjay Shorey said the tribunal can allow these individuals to withdraw a certain amount say Rs 1 -2 lakh every month based on their requirement like it had done in case of IL&FS former directors.

He explained that the move is based on the fact that the ministry doesn't have the powers to halt the operations of these statutory auditors Deloitte Haskins & Sells, and BSR Associates which is an associate of KPMG, and they should be allowed to access money to meet only operational expenses till the order of their ban is passed.

But the tribunal did not offer any interim relief saying these auditors have moved the NCLAT challenging the tribunal order to implead them and prosecute them at the appellate tribunal, which will hear the matter on August 19.

"Hence, we will only hear your arguments and not pass any order today," the tribunal bench comprising VP Singh and Rajesh Sharma added and adjourned the matter to August 28.

To this, Shorey pointed out that the tribunal has the powers to give an interim relief to attach the accounts, otherwise the coffers will be empty by the time the NCLAT verdict comes in.

"Moreover, the objective is to ensure that if fraud has indeed taken place, there should be something realisable from the parties to the fraud," he added.

It can be noted that after NCLT had stayed its own order to prosecute the auditors on July 25 for four weeks to allow the auditors to appeal in NCLAT, the auditors approached the appellate tribunal. The NCLAT would hear the pleas of auditors on August 19.

Cash-strapped IL&FS eyes Rs 480 crore from sale of two towers at Gift City

Bankrupt IL&FS group has put on block its entire commercial real estate assets in the Gujarat International Finance Tec-City (Gift City) for sale, which according to sources, is likely to fetch around Rs 480 crore.

In a public notice Monday, IL&FS said it has put its two towers — Gift One and Gift Two — having a developable area of around 6 lakh sqft on the block and has invited expressions of interest from investors.

These two commercial towers of 28-storeys each, are developed by special purpose vehicles — Sabarmati Capital One and Sabarmati Capital Two — respectively, which are subsidiaries of IL&FS Urban Infrastructure. According to industry experts, the deal is expected to fetch the crippled company around Rs 480 crore and property consultant CBRE is assisting for the transaction.

The parent IL&FS owes close to Rs 1 trillion to over 50 banks and financial institutions and have been defaulting on its debt obligations since last September. The company was sent to the bankruptcy tribunal last October after the government superseded its board.

ED summons senior executives of Deloitte in IL&FS money laundering case

Confirming the development, an ED official said Deloitte’s senior management was asked to appear before the agency on June 12. “We have asked the audit firm to get relevant documents required in the case and indicated that all the related firms and individuals will be rounded up.”

Sources said those likely to be rounded up would include former auditors of IL&FS and its subsidiaries. An email sent to Deloitte remained unanswered.

The move comes after the ministry of corporate affairs (MCA) launched a prosecution against Deloitte Haskins and Sells as well as BSR and Associates LLP and their former auditors for their alleged role in perpetuating the fraud at IFIN, a subsidiary of IL&FS.

The ministry also recommended debarment of these audit firms and their audit partners. It sought interim attachment of their properties, including bank accounts and lockers.

ED is examining the charges put up against the audit firm in the Serious Fraud Investigation Office (SFIO) prosecution complaint, filed last week. “We are currently looking at all aspects that led to a fraud in the company. The agency will examine the role of auditors in the proceeds of crime and the complex structure allegedly created so that a fund could be easily siphoned off,” said the official.

Last month, enforcement sleuths conducted search operations at the business premises and residences of four former directors at IFIN.

These include Rajesh Kotian, former executive director of IFIN; Shahzaad Siraj Dalal, who took IL&FS overseas, headed funds floated by IL&FS Investment Managers, and financed some real estate developers in India and Siddharth Mehta, one of the promoters of Bay Capital and director at IL&FS Energy Development Company.

IFIN director Manu Kochhar and former managing director of IL&FS Engineering and Construction Company Mukund Sapre were also searched by the probe agency.

According to the sources, a statement has been recorded of most of the individuals searched so far. “We have come across strong evidence with respect to serious anomalies, multiple irregular transactions, and money involved.

Based on the evidences, we are rounding up more people involved in the case,” the sources added.

The ED had earlier conducted similar searches in February after it filed a money laundering case under the Prevention of Money Laundering Act.

Sources said the ED suspects proceeds of the crime to be over Rs 13,000 crore, involving several overseas deals. Sources added the ED is probing instances of end-utilisation of loans, including money lent to borrowers of IFIN. There is evidence showing that advances were given to entities linked with senior executives of IL&FS and IFIN.

The ED is examining whether the falsification conducted by the auditors caused loss to the company and how much of it was being diverted. The ED’s case is based on a first information report filed before the economic offences wing of the Delhi Police in December last year. The director of an infrastructure firm had filed the case against officials of IL&FS Rail for allegedly triggering Rs 70-crore loss to his company by fraudulent means.

Trouble for Deloitte

MCA has launched a prosecution against Deloitte Haskins and Sells, and BSR and Associates

Former auditors of IL&FS and its subsidiaries may be asked to appear

Ministry also recommended debarment of these audit firms and their audit partners

Gail top bidder for IL&FS wind power plants with Rs 4,800-crore offer

State-owned Gail (India) has emerged as the highest bidder for seven operating wind power plants of Infrastructure Leasing and Financial Services (IL&FS) having a total generation capacity of 874 megawatts. This is a first major transaction in making for resolution of assets of IL&FS.

Gail has offered Rs 4,800 crore for the wind projects, which will fetch the beleaguered group 100 per cent of the enterprise value, thereby resulting in no hair cut to the debt of the SPVs. The total debt of the Special Purpose Vehicles (SPVs) is to the tune of Rs 3,700 crore, IL&FS said in a statement.

The proposal has been unanimously approved by the Committee of Creditors (CoC) of IL&FS Wind Energy Limited (IWEL), which majorly owns the SPVs.

However, ORIX Japan, the other shareholder in the wind energy assets, has not approved the sale yet. But, the company says, they are engaging with them and closure is expected in the next three weeks.

The sale process for wind energy assets of IL&FS Group has reached an advanced stage, said the company.

The monetisation of wind assets was launched through a public invitation for expressions of interest on November 29, 2018. The beleaguered group is selling its assets as a part of the government appointed board’s strategy to restructure the group. The IL&FS group has hired Arpwood Capital and JM Financial as the financial and transaction advisers. Also, Alvarez Marsal has been hired as the bankruptcy resolution consultant.

“The sale proceeds, as and when realised by IWEL, shall be held in trust for distribution to the relevant stakeholders, in accordance with the resolution framework filed with the National Company Law Appellate Tribunal (NCLAT) by the Union of India,” the company said in a statement.

Moreover, the conclusion of the sale process will also be subject to approval of Justice (Retd) D K Jain and NCLT in accordance with the resolution framework.

On April 3, the board presented a status update of IL&FS’ financial health and the various steps they have undertaken to resolve the crisis and expressed confidence that they will be able to achieve the resolution of the group in an accelerated manner.

“The sale of assets, including education, funds, roads and thermal power plant are underway and binding financial bids are expected for these companies/businesses in stages by May 2019,” the company said.

Group entities of the beleaguered IL&FS began to default due to asset liability mismatch in second quarter of FY19. Its payment obligations on maturing loans were far more than its cash flows. The defaults by IL&FS entities caused liquidity squeeze in the markets, affecting the NBFCs and HFCs adversely. The group companies have a total debt of more than Rs 94,000 crore.

Of the Rs 94,000 crore debt that the group owes, state owned lenders with an exposure of Rs 35,382 crore (secured and un-secured) are the worst hit because of the group’s defaults, followed by investors holding non-convertible debentures of IL&FS having an exposure of Rs 25,767 crore.