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 the 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 The group's board was superseded by the corporate affairs ministry and various entities, including auditors and independent directors, came under the regulatory scanner for the alleged lapses.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.
"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.
"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 windmills 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.