MUMBAI: How did IL&FS go from being a top-rated company to default category in two months?
According to sources in IL&FS and rating agencies, the strength behind the continued rating was a term-sheet signed by private equity investor Lonestar to acquire road assets of the company by taking over debt and bringing in Rs 4,000 crore. Also, the books of subsidiaries had assets well in access of liabilities, according to the annual report.
Now that the group has virtually imploded, the new board constituted by the government is likely to find a big hole in the balance sheet. According to REDD Intelligence, a Singapore-based firm that specialises in distressed debt, the Rs 4,500-crore equity will be insufficient to right-size the balance sheet. The report places the capital requirement in the Rs 22,500-30,000 crore range. According to the report, this capital is required, given the high level of impairment of assets.
As recently as 2017, IL&FS had enough liquidity in cash and cash equivalent to service eight-10 months of debt repayments. This dropped dramatically to four months in December 2017 following a dispute with the National Highways Authority of India (NHAI).
Despite its liquidity woes, the company managed to retain its rating in 2018 because of deal with private equity investor Lonestar to sell road assets and projection of cash flows from NHAI and through a rights issue. By the first quarter of FY19, the company was badly stuck for liquidity and had failed to meet its repayment obligations.
Lonestar was earlier in talks to pick up stake in IL&FS Transportation (ITNL) but subsequently shortlisted six of the best assets of ITNL. The term-sheets were signed and the PE investor promised to come up with the money soon.
The ITNL default was the first alarm, which triggered a downgrade. Soon thereafter the companys auditor while reviewing results for the first quarter said that there was “material uncertainty on the companys ability to continue as a going concern”. According to IL&FS, the group had dues of Rs 8,000 crore from NHAI.
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