IL&FS looks to resolve half of its debt by March, but COVID uncertainties to weigh on recoveries

New board looks to reduce number of companies and simplify complex structure

IL&FS to receive first set of bids under asset monetisation process on March 18 [File] IL&FS, a large lender to infrastructure projects, sent shockwaves in 2018, when it defaulted on its loans | Reuters

The Infrastructure Leasing and Financial Services (IL&FS) Group is looking to resolve close to Rs 50,000 crore of its debt by the end of March 2021 and beyond, taking its total debt resolution to around Rs 57,000 crore, top company officials said on Monday. At the same time, the new board is looking to reduce the number of companies and thus simplify the complex structure within the group. 

IL&FS, a large lender to infrastructure projects, sent shockwaves in 2018, when it defaulted on its loans. It had debt of close to Rs 1 lakh crore at that time. Subsequently in October that year, the board was superseded and a new board under the chairmanship of Uday Kotak, the chairman of Kotak Mahindra Bank, was appointed by the government. 

The new board has been looking to sell some of the assets or restructure others to resolve the huge debt issue and since taking charge has resolved close to Rs 17,500 crore worth debt, which included sale of seven wind energy assets and its stake in the GIFT City (Gujarat International Finance Tec-City), among other things.  

“In the quarter ending September 2020, we hope to achieve an outcome of Rs 8,800 crore. In the quarter ending December 2020, we hope to cover a debt of Rs 18,000 crore. In the quarter ending March 2021, we look to settle debt of over Rs 6,000 crore and finally beyond March 2021, we expect to resolve debt of over Rs 6,600 crore. In this way, we expect to resolve debt of over Rs 40,000 crore in the next three quarters and beyond,” said C.S. Rajan, managing director of IL&FS. 

The group’s debt resolution plan relies on Rs 13,500 crore via sale of entities, and monetisation of road assets through the Infrastructure Investment Trust (InvIT), which should take care of the debt of around Rs 11,200 crore, said Rajan. The board has also been engaging with the National Highways Authority of India (NHAI) and state governments, through which it hopes to settle claims worth Rs 5,600 crore. 

Additionally, through sale of real estate assets of IL&FS Group, it plans to address debt of Rs 900 crore in the quarter-ending March 2021 and about Rs 1,200 crore after March. It is also hopeful of restructuring the debt of Rs 4,950 crore in ITPCL (IL&FS Tamil Nadu Power Company). However, this debt restructuring will be subject to receivables from Tamil Nadu Generation and Distribution Corporation. 

The group is also targeting loan recoveries in IL&FS Financial Service (IFIN) to the tune of Rs 200 crore in the December quarter, Rs 600 crore in March and Rs 1,450 crore beyond March. 

During the same period, IL&FS is also looking to reduce the number of subsidiaries and associates to around 60 from around 276 now and 347 as of September 30, 2018.

However, the uncertainties due to the COVID-19 pandemic, which led to a nationwide lockdown for over two months from March 25 and hit the economy hard, is clearly posing a risk to IL&FS’ resolution plans.

For instance, a Italian company had made a binding bid for the Pune-Sholapur Road project in Maharashtra. But in the wake of COVID-19, the Italian company withdrew. 

“The other area where it has been delayed in terms of timing is in real estate, which we would have otherwise moved faster. It has also taken longer to get approvals through the system, including whatever we need to put into NCLT (National Company Law Tribunal); because of COVID, that process has certainly slowed down. Therefore, it (COVID) in some ways has delayed our progress, and real estate is where we will see some implication on the value realisation,” said Kotak.

Also recovering loans given by IFIN has been a huge challenge for the new board. “The loans given to some very large groups—who themselves are in deep trouble—we virtually got zero recoveries on some of those large loans; some of them are in excess of Rs 1,000 crore or higher. If you look at the IFIN book, which goes back to pre-2018 October, its highly concentrated loans to a few large groups. Those IFIN loan recoveries are turning to be one of the most difficult aspects because of the situation and the quality and the characteristics of the underlying borrowers,”  Kotak said.

IL&FS' Group resolution framework had received approval from the National Company Law Appellate Tribunal in March this year.