Mumbai: IL&FS will hold a board meeting on Friday to seek an immediate loan of around Rs 3,000 crore from key shareholders — LIC and. The financial services conglomerate, with around Rs 1-lakh-crore public debt, is gasping for liquidity after failing to meet certain repayment obligations and triggering fears of loan recalls.
The emergency meeting is expected to convey the intensifying crisis at IL&FS to all the main shareholders and also possibly expedite a proposed Rs 4,500-crore rights issue, which is scheduled for early November. On the positive side, all prominent shareholders — LIC, Orix of Japan, SBI, Abu Dhabi Investment Authority and HDFC — have agreed in principle to participate in the rights issue.
The latest activity follows a group company, IL&FS Financial Services, failing to meet repayment obligations through a commercial paper borrowing last month. This has resulted in the RBI barring the company from raising short-term funds through this route until 2019. The technical default has promoted other lenders to check on their loans over fears of default.
“IL&FS is seeking a Rs 3,000-4,000 crore loan to stall a deepening crisis, which carries crucial ramifications in sectors like infra,” sources said. IL&FS will inform shareholders that the funding will be secured as it has claims of Rs 8,000 crore from various state governments for road projects. These payments are stuck over the dispute on the actual amount, but nearly 80 per cent of the claims are acknowledged as a liability. It is also telling shareholders that it is changing its project structure to avoid disputes in the future. IL&FS declined to comment.
IL&FS has also been in talks with three investors — Lone Star, ISquared Capital and National Infrastructure Investment Fund — to sell some of its road portfolios to pare debt. These negotiations have taken time as potential acquirers scrutinize investment returns.
On the rights issue, the company is telling shareholders that they will be able to increase their stakes at a “very attractive” valuation by subscribing currently. LIC, the largest shareholder with 25.34 per cent stake, is prepared to provide funds. However, insurance laws do not allow raising ownership and LIC risks increasing the stake if other shareholders do not invest.