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In October 2018, the government had seized control of the debt-trapped company and superseded its board by appointing a new one, led by eminent banker Uday Kotak as its chairman.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

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.
chart
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.

IL&FS reports Rs 22,527 cr net loss for FY19; revenue of Rs Rs 824 cr

Cash-strapped Infrastructure Leasing & Financial Services (IL&FS) on Wednesday reported a standalone net loss of Rs 22,527 crore for the fiscal to March 2019, as against Rs 333 crore in the previous fiscal.
The scam-ridden infra lending major reported revenue of Rs 824 crore, massively down from Rs 1,734 crore in the previous year.

This is the first earnings announcement after the government sacked its board in October last year.
As of end March 2019, total assets stood at Rs 4,148 crore, a pale shadow of Rs 23,868 crore year-ago, a company statement said, adding its liabilities rose to Rs 21,083 crore from Rs 18,276 crore in FY18.
It said the board adopted prudent provisioning on loans/impairment for investments, besides taking a conservative view on fair market value and recovery estimates.
In October 2018, the government seized control of the debt-trapped company and superseded its board led by Uday Kotak as the chairman.
The new board, as part of the overall resolution process for the IL&FS Group, has sold a number of assets to clear the dues and debt.
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.

We'll recover at least 50% of group's debt by March 2020, says IL&FS

The government-appointed management committee of the IL&FS Group says it expects at least half of the group’s debt to be resolved, recovered or restructured. And, to do a significant portion of that by March 2020.
“(That is) our good faith view at this point of time,” said Uday Kotak, the recently appointed non-executive chairman. “When we are saying 50-plus per cent is our estimate, we are saying that we are confident of actual resolution or recovery of at least 50 per cent of Rs 94,000 crore.”

The group is in the process of addressing Rs 36,400 crore of debt till date, of which recovery or resolution of at least Rs 30,000 crore is expected, it says. For now, the group is targeting low hanging fruit. Such as the sale of the wind energy subsidiary to ORIX Corp, for which the National Company Law Tribunal has given permission, with banks also expected to shortly do so. The amount of Rs 4,320 crore related to the Special Purpose Vehicle in question can be fully recovered through the deal, says the management.
On the other ‘green’ entities, or group firms that can service debt on their own, the management says it is trying to make these “positive equity” and then pass it on to entities that can better manage these. For now, Rs 7,930 crore of such dues are getting addressed.
For ‘Amber’ or ‘Red’ companies in roads and education, bids are being submitted to the committees of creditors (CoCs). The company has received bids of Rs 8,100 crore for these companies that hold debt of Rs 10,150 crore. For entities with low or no bids, the management will consider an infrastructure investment trust (InvIT) model. At present, the net cash available is Rs 3,200 crore. The InvIT model will be particularly considered for nine domestic road projects with total debt of Rs 10,800 crore. Of these, the group got lower bids for five projects and none for the remaining four.
The final decision on whether to accept the bids or the InvIT model will rest with the lenders. IL&FS is also considering an option whereby lenders convert their debt to units in the InvIT for these nine projects.
In September, IL&FS said it had got binding bids worth Rs 13,000 crore for 10 road projects with combined debt of Rs 17,700 crore. The group on Tuesday said it had decided to send five of these bids for CoC approval, for debt worth Rs 9,500 crore.
graphAlso on Tuesday, it said a bid had come from abroad for its road project in China, where debt exposure is Rs 1,600 crore. “The binding bid received is with equity value,” IL&FS said.
The group is also in discussions with lenders for restructuring debt worth Rs 8,000 crore for its Tamil Nadu power project.
Officials added the group’s engineering entity, IL&FS Engineering and Construction Company, will start participating in these project works. The management committee said these orders will be pursued either through joint ventures or back-ended contracts.
The group will also look to monetise its real estate assets, including its headquarters building in Mumbai. The management committee is hopeful of Rs 3,000 to Rs 3,500 crore from this sale. Kotak attributed the Mumbai building alone to be worth upward of Rs 1,500 crore.
In the past year, the group cut jobs by a third, through both voluntary exits and dismissals, to 16,000 employees from the earlier figure of 22,000.
The management committee says it has also adopted a 'cash conservation culture', with a balance of Rs 5,300 crore as of end- August. Recovery of loans from non-IL&FS group entities was about Rs 1,200 crore. The group also restructured debt worth Rs 5,100 crore, moving three entities from amber to green category.
Murky past
IL&FS was a complex pyramid, of 302 entities – 169 domestic and 133 international ones, present across 11 countries, with a four-layered structure.
Vineet Nayyar, the newly appointed executive chairman, and former head of Mahindra Satyam (Mahindra acquired Satyam after the latter's promoter was jailed for major fraud) said IL&FS’ former management had no value for money. Heads of various entities fought own turf wars.
“I have never seen so many automobiles in a company than I see here," he observed. "Over-expenditure was a trait. Even Satyam had far better controls; it was, in many ways, a very well-managed company as compared to (IL&FS).
Uday Kotak gets 1-year extension on IL&FS board
The government on Tuesday allowed Kotak Mahindra Bank Managing Director Uday Kotak to continue as the head of bankrupt infra lender IL&FS for one more year. Kotak was appointed by the Centre as the head of the lender’s board which will help the troubled company come out of difficulties, after the state took over the board. - PTI

Best of BS Opinion: India's governance deficit, from cities to companies

You know something is rotten in the state of Indian corporate governance when an investigation into Infrastructure Leasing and Finance Corporation (IL&FS) reveals gifts and favours extended by the management to rating agency officials. Luxurious villas, tickets to a Real Madrid football match, and a Fitbit watch were among the inducements that change hands for favourable ratings, according to a preliminary forensic audit report by Grant Thornton. Governance is also a top-of-the-mind issue on the 50th anniversary of bank nationalisation. That seminal exercise by Indira Gandhi, embedded in populism, had some beneficial results but as T N Ninan points out here, government-owned banks now have a problem and the private banking system is growing faster and is more profitable. The government’s focus now should be on delivering a vibrant financial sector where health is not determined by ownership.
Elsewhere in the opinion section, columnists examine the parlous state of Indian cities, the bizarre drama in Karnataka and India’s dubious demographic dividend. Kanika Datta sums up the views

Why do Indian cities suck? Because our mindset towards them is still conditioned by one of the great Gandhian hypocrisies we have perpetuated. That the cities are evil, villages virtuous, says Shekhar Gupta here
India’s growing working age population can only be an asset if, like the Asian Tigers, the country creates competitive manufacturing bases, excellent infrastructure and a skilled and educated workforce. The country has missed the bus on all counts, says Devangshu Datta. Read it here
The Westminster parliamentary system that India has inherited imposes moral values on political parties, MPs and MLAs. The controversy over defections in the Karnataka Assembly shows that viewing these factors in a Ricardian way, in this case, in terms of the returns on political power might clarify matters, says T C A Srinivasa Raghavan. Read his explanation here
Quote of the day
‘Those chants have no place in our party or our country,”
Republican representative Kevin McCarthy of California on ‘send her back’ chants against Ilhan Omar at a Trump rally

Sector watch: Are banks looking at a stable June 2019 quarter?

The fallout of one of the biggest non-banking financial companies (NBFCs), Infrastructure Leasing & Financial Services (IL&FS), soaked up liquidity from the system. Consequently, consumption - gauged by dipping auto sales, and low real-estate prices – led to a crippled the economy over the past few months. Thereafter, developments at Dewan Housing Finance Corporation (DHFL), insolvency of Jet Airways and spat of bank frauds snowballed the liquidity crisis and shook investors’ confidence.
As the markets prepare for big players in the banking and financial services sector set to declare their April-June quarter numbers for the 2019-20 fiscal year (Q1FY20) this week onwards, experts see stability to return to the liquidity-crisis hit sector, but caution that the financial sector is not completely out of the woods yet.

The performance of the Nifty Bank index in the June 2019 quarter, however, is a different story. Most stocks in the sector, analysts say, have been doing well in the hope of an uptick in the economy. The Nifty Bank index has outperformed the benchmark Nifty50 index between April and June 2019 and surged 2.5 per cent during the period, while the Nifty50 gained only 1 per cent.
BANKS vs NBFCs
NBFCs – the reason why banks are tied up in the funds’ crisis – are likely to continue their downslide even as negatives for banks are likely to have already played out, analysts say. Moderated slippages, stable net interest margin (NIM), higher provisions, stable gross non-performing asset (GNPA) ratio, recovery and resolutions of stressed assets and toned-down loan growth could guide the banking space.
“The story of two halves is likely to persist in the banking and financial services space in Q1FY20 -- while improvement in core performance will aid banks’ prospects, NBFCs will continue to be plagued by liquidity constraints, reflected in availability as well as cost of funds,” analysts at Edelweiss Securities wrote in an earnings preview note.
For private banks, lower credit costs, contained slippages from retail and agri-based loans and improved market share could be a booster while falling benchmark yields could benefit public sector lenders, experts say.
“Earnings are expected to remain on track coming off from high NPAs. This quarter and fiscal onwards, earnings will be better. Among mid-cap private banks, AU Small Finance Bank, DCB, RBL Bank and Federal Bank could report decent earnings with revenue growth around 30-40 per cent on an average… PSBs have lower base due to due to losses in the previous quarter which will affect their numbers,” says Nitin Aggarwal, senior vice president- institutional research (banking), Motilal Oswal Financial Services.
However, significant haircuts, delay in resolution of cases under National Company Law Tribunal (NCLT), depleting asset quality and tepid loan growth continue to remain some of the concerns denting banks’ growth prospects analysts say.
GROWTH OUTLOOK
According to Phillip Capital, the banking companies under its coverage could see a jump of 11 per cent year-on-year (YoY) and of 1 per cent quarter-on-quarter (QoQ) in net interest income driven by some moderation in credit growth and stable NIMs.
“Within this, private banks will report strong performance with net interest income (NII) growth of 18 per cent (YoY). Furthermore, pre-provision profit is expected to grow by 8 per cent (YoY), but could decline by 5 per cent on a sequential basis. Pre‐provision profit for retail banks is expected to grow 24 per cent (YoY) and 2 per cent (QoQ), while that of PSU banks will decline by 12 per cent due to seasonality,” their analysts wrote in a result preview note.
The quarter could see bank-specific recovery depending on the level of exposure each bank has to default names.
“Slippage will moderate slightly and will mainly come from corporate accounts; retail and agri slippages should moderate. This, along with few small‐ticket recoveries should keep GNPAs stable. We expect GNPAs (%) to decline by 10 basis points QoQ,” analysts at Phillip Capital said.
For NBFCS, analysts at Edelweiss peg the overall growth of asset under management (AUM) of NBFCs at 2.1 per cent (QoQ) and 12.8 per cent (YoY).
“In H2FY19, NBFCs’ earnings were supported by assignment income, which is likely to be relatively lower in Q1FY20. However, they will be supported by wholesale borrowing cost coming off 20-30bps, helping them improve core performance at the margin on a low base in H2FY20. We estimate operating growth of 3.6% per cent (YoY) and earnings growth of 22.3 per cent (YoY) for NBFCs under coverage,” they said.

Pension, provident funds to get top priority in repayment from IL&FS: NCLAT

The National Company Law Appellate Tribunal (NCLAT) on Friday said pension and provident funds which had invested in Infrastructure Leasing & Financial Services (IL&FS) would have priority in payment from all categories of companies, whether classified as green, amber or red. While the companies classified under the green category by the new board of IL&FS have been allowed to service their debt to all secured and unsecured creditors, those under amber category had been allowed to service debts of only senior secured creditors.
During the last hearing on May 30, the NCLAT had said that if IL&FS companies under the amber category were not reclassified into the green category, the appellate tribunal will pass orders asking such companies to service 100 per cent debt obligations of the provident and pension funds. On Friday, the new management of IL&FS said that of the 13 companies under the amber category, three had been reclassified as green. According to sources, these include Jharkhand Road Projects & Implementation Company (JRPIL), Moradabad Bareilly Expressway and West Gujarat Expressway (WGEL).

For Birla Sun Life Mutual Fund (MF) — which was one the fund houses affected by IL&FS entities’ suspending debt repayment — the move is a major relief.
ALSO READ: IL&FS puts Rs 2,880 acre land parcels in Kutch for sale to monetise assets
“JRPIL was one of our major exposures in IL&FS, at around Rs 890 crore. The exposure was spread across our medium-term plan, credit risk fund and dynamic bond fund. ‘Green’ classification will make this a standard asset as the debt servicing will resume. JRPIL was a good asset as the money was coming into the special purpose vehicle’s escrow account,” said A Balasubramanian, chief executive officer of Birla Sun Life MF.
Among other creditors, L&T Finance also stands to gain from re-classification of these three entities. According to sources, the non-banking financial company (NBFC) had over Rs 1,500-crore exposure to the entities classified as ‘green’. The NBFC’s total exposure to IL&FS is around Rs 1,800 crore, according to people in the know.
Based on the procedure followed by the three IL&FS entities, the remaining companies would also be placed in the green category over time, the counsel for the new management informed the NCLAT. The matter will be next heard on August 8. The new board at IL&FS had classified IL&FS group companies into three categories — green, amber, and red — based on their financial health and ability to service debt obligations to secured and unsecured creditors.
Companies with no cash and not in a position to pay any creditor were classified as red, while those with enough to pay secured creditors but not unsecured ones were put under the amber category.
The firms which have enough money to service all their debts, to the secured as well as unsecured creditors, were classified as green. IL&FS defaulted on debt instruments including loans, bonds and commercial papers of more than Rs 4100 crore as of October 1. The outstanding loan of the IL&FS group is about Rs 60,000 crore, while the debt is over Rs 91,000 crore.

IL&FS board sets up sub-committee to oversee disinvestment process

Debt-ridden IL&FS has decided to constitute a sub-committee to oversee the process of divestment of its assets in light of the Reserve Bank of India's June 7 circular which has laid guidelines for resolution of bad loans.
The decision to form a sub-panel was taken in its board meeting held on June 28, Infrastructure Leasing & Financial Services Ltd (IL&FS) said in a statement.

During the meeting, IL&FS board reviewed the progress on divestment of all domestic and foreign assets outlined in its resolution framework.
The board has decided to constitute a six-member empowered committee, including four directors Vineet Nayyar, C S Rajan and Bijay Kumar to discuss and finalise the asset-wise framework of resolution with lenders.
The board decided to empower the panel to take necessary steps to enhance enterprise value of assets under divestment.
"This committee is formed in view of positive response received from financial institutions to the framework outlined, by Prudent Norms for resolution of stressed assets issued by RBI on June 7 earlier this year," it said.
After the Supreme Court quashed RBI's guidelines on stressed assets, released in February 2018, the central bank on June 7 came out with revised norms which gave more room to lenders for resolution of bad loans.
It further said the board also decided to allow the bidders for toll road assets to jointly monitor traffic data and assess revenue stream.
The board noted that the stake sale in seven wind energy special purpose vehicles (SPVs) is in final stage after Orix has conveyed it's decision to match GAIL's offer.
LIC, which is IL&FS biggest shareholder with a more than 25 per cent stake while Japan's ORIX Corp with a 23.54 per cent stake and Abu Dhabi Investment Authority with 12.56 per cent.

Probe nails IL&FS management 'who ran business as personal fiefdom'

Launching a massive crackdown on perpetrators of the IL&FS scam, the Serious Fraud Investigation Office (SFIO) has charged the erstwhile top management members of the group's financial services subsidiary IFIN of forming a "coterie" with its auditors and independent directors to defraud the company while running the business as their "personal fiefdom".
ALSO READ: MCA moves NCLT against Deloitte, BSR over fraud at IL&FS subsidiary
Officials also said it is just a tip of the iceberg in this massive fraud case, involving defaults totalling an estimated amount of over Rs 90,000 crore, as the SFIO's first chargesheet concerns just one entity, IL&FS Financial Services Ltd (IFIN), and the probe is already underway against the parent firm Infrastructure Leasing and Financial Services Ltd (IL&FS) and several other subsidiaries.
In addition to prosecution of former executive and independent directors of IFIN, among others, and attachment of their properties, the SFIO is also looking to seek interim attachment of all moveable and immovable assets of the auditors including their lockers, bank accounts and jointly-held properties, officials said.

ALSO READ: From PNB to IL&FS, probes into top financial scandals to be settled soon
The SFIO is also collecting details about all borrowings by IFIN from banks and through market instruments, as also about the role of banks and their officials and of credit rating agencies.
The first charge-sheet, filed by the government's white-collar fraud investigation agency, follows inspection of accounts of close to 400 entities, an extensive forensic audit, data collected from desktops and laptops seized from various IL&FS offices as also e-mails extracted from the IL&FS servers, RBI inspection reports, minutes of meetings, among other documents, as also the assessment reports from the government-appointed new board of IL&FS.
The huge scam came to light last year after IL&FS and its subsidiaries defaulted on several debt repayments due to a severe liquidity crisis. As of March 2018, it owed over Rs 90,000 crore to banks and other creditors. The government in October last year superseded the board of IL&FS and appointed a new board, with eminent banker Uday Kotak as its executive chairman.
In its chargesheet filed before a special court in Mumbai last Friday, the SFIO has accused 30 entities/individuals of various violations and offences, including of financial fraud. Some of the accused persons are already in judicial custody.
The former top-management members of IFIN have been charged with committing fraud with intent to injure the interest of the company, its shareholders and creditors, resulting in wrongful loss to the company.
They have been accused of forming a "coterie to control day-to-day affairs of the company and of colluding with others" in using illegal methods on multiple occasions in violation of the RBI directions.
They have also been accused of conniving with some borrowers to help them make wrongful gains in the form of loans with the intention of not repaying the same.
It has further alleged that statutory auditors of the company also colluded with the top management of IFIN and fraudulently falsified the books of accounts and the financial statements from the fiscal year 2013-14 to 2017-18.
The members of the audit committee also connived with the 'coterie' and overlooked the violations of norms, causing unlawful loss to the company.
The 'coterie' repeated its modus operandi several times by getting an earlier loan facility for a borrower closed and creating a fresh facility, which was again funded after default with another funding cycle through the same or another group entity. Ultimately, the final loan facility was declared an NPA or written off, while several of them remain outstanding resulting in the ballooning of debt.
The 'coterie' members abused their position, connived with auditors and others to defraud the company by devising an "illegal strategy" of lending money to group companies of IFIN by funding to vendors and contractors of another group firm.
The top management members also "deliberately presented falsified, spruced up, deceptive and misleading" financial statements to the credit rating agencies, who continued to give them the highest ratings till the later part of 2018, the SFIO has charged.
Listing names of Deloitte Haskins and Sells LLP and BSR and Associates LLP in the chargesheet, the SFIO said, "The statutory auditors failed to discharge their duties diligently and did not use professional scepticism to ensure true and fair disclosure of the state of affairs of the company".
"They, in fact, colluded with officials of the companies in order to conceal their fraudulent activities," the SFIO said while citing documentary and digital evidence as also relevant portions from its investigation report about statements recorded during the course of the probe.
The probe agency said the financial statements prepared and filed by the company did not give a true and fair view of the state of affairs at the company, while the financial statements for the fiscal years from 2010-11 to 2017-18 were not in compliance with the applicable accounting standards.
One of the directors did not disclose his interest in a borrower company which had his wife and daughter on the board.
The 'coterie' identified by SFIO included Ravi Parthasarthy, Hari Sankaran, Arun Saha, Ramesh Bawa, Vibhav Kapoor and K Ramchand, who were in the top management of various IL&FS firms.
SFIO said its probe revealed that IFIN, as an NBFC, extended loans to companies of Siva, ABG, A2Z, Parsvnath and other corporate groups, though a number of them were not servicing their debt obligations timely.
The 'coterie' was aware of the potential problematic accounts, as flagged by the company's internal systems, but kept on getting loans extended to other companies of the same borrower groups, it added.

IL&FS to get first set of bids under asset monetisation on Monday: Report

Cash-strapped IL&FS Group will receive first set of bids under asset monetization process on Monday as part of resolution process, according to sources.
The company's board will later consider bids for Rs 8,000 crore renewable energy business that was put on the block in November 2018, the sources said.

This will be the first set of bids that will be opened under asset monetization process as part of resolution process by government-appointed and Uday Kotak-led new board, they added.
The group, which is sitting on the debt of about Rs 94,000 crore debt, had decided to sell assets in various verticals, including roads, education, renewable energy, and broking in November last year.
The renewable assets of the group include operating wind power plants with an aggregate capacity of 873.5-mw, and under-construction such plants with 104 mw capacity. It also includes the solar power business, under which it has around 300-mw of under-construction projects.
Japan's Orix is the joint venture partner in the wind power business and the completion of sale of this business is expected to reduce IL&FS debt of about Rs 5,000 crore.
When contacted IL&FS spokesperson declined to comment on the same.
According to sources, nearly two dozen firms had participated in the expression of interest sought by the company that ended on December 10, 2018.
Several companies, sources said, have completed their due diligence of the underlying assets.
However, the completion of entire process and shortlisting of the final bidder will take a few weeks as multiple processes are involved.
LIC is the single largest shareholder with over 25 per cent stake in IL&FS and Orix Corp owns a little over 23 per cent.
IL&FS Employees Welfare Trust holds 12 per cent in the company. The Abu Dhabi Investment Authority, HDFC and Central Bank of India hold 12.56 per cent, 9.02 per cent and 7.67 per cent, respectively, in the cash-strapped company. The country's largest lender SBI has around 7 per cent stake in the company.

IL&FS board charges former directors of money laundering, criminal intent

Tasked with cleaning up of mammoth financial mess at embattled IL&FS, its government-appointed board has charged 14 former directors of group firm IL&FS Financial Services Ltd (IFIN) of facilitating money laundering, sanctioning loans in violation of rules and causing "huge financial stress and losses" to the company.
In show-cause notices issued to the 14 former directors, the new management has charged them of having "sanctioned loans deceptively to external and group companies with sole objective to infringe RBI guidelines of excessive exposure of IFIN to intra-group companies."
They have also been accused of extending loans for "criminal intent of falsification of repayment by a number of borrowers, including some entities associated with large corporate groups.
The notices, dated February 27, have asked former directors to reply within seven days upon receipt as to why departmental and legal actions should not be taken against them for their "misconduct, dereliction of duties, gross negligence and acts of conspiracy and getting unlawful gains for oneself and others."

Officials said no reply has been received from any of the 14 noticees and the board is set to follow up the notices with stern action, which may include filing of cases.
When contacted, IL&FS (Infrastructure Leasing and Financial Services Ltd) spokesperson Sharad Goel declined to comment.
The notices follow an extensive special audit ordered by the new board and conducted by Grant Thornton of crisis-hit IL&FS Group, which identified numerous financial irregularities in deals with financial implications of over Rs 13,000 crore.
IL&FS Group, which operates at least 24 direct subsidiaries, 135 indirect subsidiaries, six joint ventures and four associate companies, is sitting on debt of Rs 94,000 crore and landed in a major controversy last year following multiple defaults, prompting the government to supercede its board.
The audit report has identified at least 29 instances where loans disbursed to borrowers appeared to have been utilised by their group companies to repay the existing debt obligations with IL&FS Financial Services Limited (IFIN).
LIC is the single largest shareholder with over 25 per cent stake in IL&FS and Japan's Orix Corp owns a little over 23 per cent.
IL&FS Employees Welfare Trust holds 12 per cent in the company. The Abu Dhabi Investment Authority, HDFC and Central Bank of India hold 12.56 per cent, 9.02 per cent and 7.67 per cent, respectively, in the cash-strapped company. SBI has the lowest stake, at around 7 per cent, in the company.
In the show-cause notice, former IFIN directors have been accused of sanctioning loans worth thousands of crores to certain entities by "overlooking negative assessment by the credit risk assessment group" and without recording any cogent justification, despite having full knowledge that the assets of the borrower entities were stressed.
Besides, loans given to several entities were written off, the notice said, while charging the former directors of being "prima facie responsible for causing financial stress and losses to the company by acting in a malafide manner".
In some cases, the notices have alleged, the former directors were responsible for sanctioning loans without any security or with inadequate collaterals.
The former directors have also been charged of "facilitating money laundering" by some entities who diverted the loan amount to individual accounts of directors of the borrower company, including those from the IL&FS group itself.
As such individuals were allowed to go scot-free, it showed "conspiracy in loan sanctioning," the notice said.
The former directors have also been accused of facilitating some external agencies, including contractors of ITNL (IL&FS Transportation Networks Ltd), to become lenders and earn as an intermediary. In some cases, the directors were instrumental in deceptively creating "senior lenders' rights" in favour of such intermediaries after default of ITNL had already taken place, the notice has said. 

Banks can't declare accounts of debt-ridden IL&FS as NPA without NCLAT nod

No bank or financial institution can declare the accounts of debt-ridden IL&FS and its group companies as non-performing assets (NPAs) without NCLAT's permission, the appellate tribunal said on Monday.
A two-member National Company Law Appellate Tribunal (NCLAT) bench, headed by Chairman Justice S J Mukhopadhaya, said that this is done in the interest of IL&FS debt resolution plan.

"No IL&FS or its subsidiaries' account to be declared NPA by any financial institution without approval from NCLAT," the appellate tribunal said.
The tribunal's direction came during the hearing over the government's plan for the resolution of IL&FS group companies.
During the last hearing on February 11, NCLAT had allowed 22 companies of IL&FS group, which were classified in the green category based on their financial health, to service their debt obligations.
Besides, it had also approved the appointment of former Supreme Court judge Justice D K Jain to supervise the resolution process of crisis-hit IL&FS and its group companies.
The appellate tribunal also lifted the moratorium and allowed 133 IL&FS firms incorporated outside India to continue with the resolution process.
IL&FS group companies are classified into three groups -- Green, Amber and Red -- based on their respective financial positions.
The companies falling under green category will continue to meet their payment obligation. While the companies which can not meet their obligations but can meet only operational payment obligations to senior secured financial creditors are classified as amber.
The red category includes those entities which cannot meet their payment obligations towards even senior secured financial creditors.
(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

Malabar Hill property among realty IL&FS will auction off to pare debts

The debt-laden IL&FS group has further put up its properties for sale to garner funds in order to settle loan dues.
It has invited bids from interested buyers for properties (commercial and residential) in Mumbai and one in Kolkata.

Properties on sale include a 1,376 square feet residential property located at upscale Malabar Hill besides three commercial properties in Mumbai and one commercial space in Kolkata.
The embattled infrastructure and financial sector major has asked bidders to submit their bids on or before January 15.
The Infrastructure Leasing & Financial Services (IL&FS) group has loans due of nearly Rs 910 bn.
Earlier, it has invited bids to sell its various road, solar energy and education assets to generate funds.
The spree of defaults is continuing with the group, which until Friday said that the company would not be able to service its obligations in respect of the interest of non-convertible debentures due on December 29, 2018.
The group has been resorting to various measures, including selling-off the luxury cars owned by it as well as office furniture and white goods to pay-off its debt.
Sources said the company may be able to fetch nearly Rs 2 bn by selling these properties.
(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

Govt moves to re-open IL&FS group's balance sheets for suspected corruption

The corporate affairs ministry on Thursday moved the National Company Law Tribunal (NCLT) seeking to reopen the books of debt-ridden IL&FS Group and its subsidiaries for the past five years to probe financial mismanagement.
The government for the first time invoked the powers under Section 130 of the new Companies Act of 2013 to reopen ledgers of a company.

The government will check the balance sheets of crippled group and two listed subsidiaries--ITNL and IL&FS Financial Services--after the Serious Fraud Investigation Office (SFIO) found details of alleged corruption, personal enrichment and other non-transparent deals.
The NCLT, however, refused to pass an immediate order saying it has to seek the views of the Reserve Bank of India, Sebi, and the Income Tax Department.
A two-member bench of VP Singh and Ravikumar Duraisamy said they will issue the notices on Friday and will hear the matter when the court reopens on January 1, 2019.
The ministry also submitted a report on the views of the Institute of Chartered Accountants on the IL&FS Group's accounts, which were audited by Deloitte, EY affiliate SRBC and KPMG affiliate BSR.
The move comes after an SFIO probe has found serious mismanagement of accounts and fraudulent transactions across the group by the past management.
Govt moves to re-open IL&FS group's balance sheets for suspected corruption The SFIO probe has uncovered serious wrongdoing by the past management of the embattled group, with instances of income misreporting, dubious transactions, conflicts of interest deals, ever-greening of loans and personal enrichment by some key employees.
The ministry had submitted the SFIO interim report to the NCLT on December 3.
The government plea also wants NCLT to appoint an independent chartered accountant to take restate the accounts and revise the balance-sheets of IL&FS, IL&FS Financial Services and IL&FS Transportation Network and wants three months to do the job. The group owes over Rs 94,000 crore to lenders, mostly banks.
It can be noted that this is the first instance of government invoking Section 130 of the Companies Act, which empowers it reopen accounts only on a court/tribunal' order.
The law states that "a company shall not re-open its books of account and not recast its financial statements, unless an application is made by the Central government, income-tax authorities, Sebi, any other statutory regulatory body or authority or any person concerned and an order is made by a court of competent jurisdiction or the tribunal to the effect that i) the relevant earlier accounts were prepared in a fraudulent manner; or (ii) the affairs of the company were mismanaged during the relevant period, casting a doubt on the reliability of financial statements."
Meanwhile, the bench approved the appointment of two new directors to the board of IL&FS Financial Services.

IL&FS starts process to explore divestment of its interest in road assets

IL&FS board has initiated the process to explore divestment of the group’s interest in road assets and business, the group said in a statement on Monday.
“In order to ascertain market interest, and to examine feasibility of maximization of value in an orderly and transparent manner, the IL&FS Board, acting on behalf of its relevant subsidiaries including IL&FS Transportation Networks (ITNL), has today initiated the process of exploring the divestment of the IL&FS Group’s equity stake/interest in road businesses or an undertaking comprising all the assets,” the statement said.

Il&FS has listed seven operating annuity based road projects, eight operating toll based road projects, four under construction road projects, three other assets and businesses, which are EPC & O&M businesses of ITNL and a Sports Complex in Thiruvananthapuram as assets included in its domestic roads vertical.
The IL&FS Board along with the ITNL Board have decided to publicly solicit Expressions of Interest to assess the interest for a sale of its Stake(s) in the assets under this vertical.
“The Board of IL&FS and ITNL, are cognizant that these steps are required to advance the process for putting together resolution plan for the IL&FS Group, based on market interest and price discovery for various assets,” the statement said.
Arpwood Capital and JM Financial have been appointed as the financial and transaction advisors, along with Alvarez & Marsal as resolution consultants.

IL&FS group selling cars, furniture, electrical appliances to raise funds

Debt-laden Infrastructure Leasing & Financial Services (IL&FS) group firms are selling high-end cars, office furniture, electrical appliances and other assets in a bid to raise funds.
The IL&FS and its various group firms have invited bids to sell 36 luxury cars, including brands like Audi, BMW, Jaguar, Mercedes Benz, Land Rover, Honda, Toyota, and Skoda.

IL&FS has set a base price of a little less than Rs 90 million for these vehicles.
In a separate bid document, IL&FS invited bids for lump sum sale of used furniture and white goods on 'as is where is' basis at its properties in Mumbai and Kolkata.
The group is facing a serious liquidity crisis and has defaulted on various debt repayments since August 27. The IL&FS group sits on a debt pile of over Rs 900 billion.
The government had superseded the board of IL&FS and brought in seasoned banker Uday Kotak to steer the group out of its present crisis.
State-run LIC is the largest shareholder owning a fourth of the firm's equity, while other shareholders include Orix Corporation of Japan, Abu Dhabi Invest­ment Authority, Central Bank of India, and SBI.
Over the years, the company has invested over Rs 1,890 billion in infrastructure projects, primarily in surface transport, energy and urban infrastructure.

Employees of IL&FS held hostage by Ethiopian staff fear for safety

Employees of Indian company Infrastructure Leasing & Financial Services (IL&FS) taken hostage by local staff in Ethiopia fear for their safety, with some being confined to a company campus north of the African nation's capital Addis Ababa.
India has asked Ethiopian authorities to investigate and help the seven IL&FS employees who say they are being held by local staff due to non-payment of salaries by the debt-laden firm, an Indian government official said on Saturday.

A group of four employees has not been allowed to leave an IL&FS campus in Bure town, 400 km (250 miles) north from Addis Ababa, since Nov. 24, said store manager Nagaraju Bishnu, one of the employees held hostage.
Two other IL&FS employees were held hostage by local staff in the town of Woliso and one in Nekemte town, both of which are west of the Ethiopian capital, Bishnu told Reuters by telephone.
"The main gate is locked, they are observing our movement," said 26-year-old Bishnu, speaking of the situation at Bure.
"They've told us until they get their salaries, we can't move from here ... We are facing sleepless nights."
The Indian government took control of IL&FS in October after it defaulted on some of its debt, triggering wider concerns about risk to the country's financial system.
The infrastructure financing and development company had over the years developed roads, townships and water-treatment projects in India and abroad.
An official at India's foreign ministry said the government was discussing the matter "on priority" with Ethiopian authorities and the management of IL&FS.
"We are doing our best to ensure a settlement of this matter," said the official, who declined to be identified.
An IL&FS spokesman in India, Sharad Goel, declined to comment. Ethiopian government officials in Addis Ababa could not be reached for comment.
LOW ON WATER SUPPLIES
With the ordeal widely reported by media, Bishnu said he feared the local staff would take away their mobile phones or cut online access to restrict them from talking to colleagues or communicating via e-mails and social media.
For now, Bishnu said, he has been speaking with the IL&FS employees held hostage in different areas, and the movement of employees within the camp has not been restricted.
The employees are cooking their own food, eating potatoes and rice, although drinking water supplies are running low.
"After tomorrow, there will be no drinking water," he said.
Some of the seven employees being held have been posting messages on social media website Twitter, asking Indian politicians including Prime Minister Narendra Modi and the foreign minister to intervene.
Neeraj Raghuwanshi, who said he was one of the seven, late on Friday wrote an "SOS" message on Twitter saying: "Situations are beyond our control, please #help before mishappening."

RBI should be held accountable for IL&FS crisis: Arvind Subramanian

Terming the IL&FS crisis as a regulatory failure, former chief economic advisor to finance minister, Arvind Subramanian, has said the Reserve Bank of India (RBI) should be held responsible for the crisis at one of the largest entities it has been regulating.
In a soon to be published book, 'Of Counsel: The Challenges of the Modi-Jaitley Economy,' Subramanian says though RBI has a good reputation, it does not mean it's always right, as for years, the RBI was unable to grasp the seriousness of the loan repayment problems or identify the prolonged frauds of Nirav Modi and the likes.
"Now, with the recent shenanigans involving IL&FS being revealed, this failure seems to have encompassed not just commercial banks but also non-bank financial companies. For these failures, the RBI needs to be held accountable," he says in the book, published by Penguin Random House India.
The book will be first launched in Mumbai on December 7 and then in Delhi on the 9th.
Subramanian calls upon RBI to step up its abilities in two key areas of supervision and part with its mammoth reserves to recapitalise the ailing state-run lenders in a decisive manner.
"RBI must credibly step up its supervisory abilities, or even be willing to hand this over to a new agency created for this purpose. A second area is recapitalising public- sector banks in a decisive fashion, putting them back on their feet so they can lend again," he says.
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Subramanian had first made this view in the 2018 economic survey wherein he had called using the excess RBI reserves, including the forex reserves and its huge reserve capital of Rs 9.7 trillion for more productive purposes.
"The RBI has excess capital that can be profitably deployed for this purpose I realise that in making this suggestion, I am up against all the eminent current and former RBI officials, who argue that the RBI actually needs all the capital it has."
"These officials command the respect of the public, and for good reasons. But I think they are wrong" he says and quotes the late British prime minister Margaret Thatcher who used to say, 'One man and the Truth is a majority.'

Though he is critical on the central bank on the IL&FS crisis, he praises the monetary authority for some of its recent steps like the asset quality review and showing the doors to erring private-sector bank heads.

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The RBI has done an excellent job of maintaining macroeconomic and financial stability, thanks to its illustrious governors and the strong team behind them, he says and cites the 2015 move of the RBI to initiate an asset quality review, which had an important impact on advancing the twin balance sheet challenge.
"More recently, RBI has been enforcing some discipline on some of the most troubled public-sector banks via the prompt corrective action framework," he notes and terms the decision on ICICI Bank, Axis Bank and Yes Bank as "impressive actions to account, and ensuring their exit."
"As a result of the RBI's strong track record, it has become one of the nation's key public institutions, like the Election Commission, Finance Commission and the Supreme Court, mainstays of the nation that research has repeatedly found to be critical for long-run economic development," he says.
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The former CEA also calls for a radical solution to solve the twin balance sheet problem and offers privatising public sector banks by amending the Bank Nationalisation Act as an effective way to achieve that.
He also flays RBI for not coming out with an effective mechanism to resolve the NPA problem and called for setting up a bad bank as a way forward.
"So far, the strategy has been to solve the twin balance sheet issue through a decentralised approach, under which banks have been put in charge of restructuring. In the current circumstances, however, effectiveness has proved elusive, as banks have been overwhelmed by the scope of the problem confronting them," he says.
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Therefore, he says "the time may have arrived to try a centralised approach, or a public sector asset rehabilitation agency. As so far, public discussion of the bad loan problem has focused on bank capital, as if the main obstacle to resolving the TBS issue was finding the funds needed by public-sector banks."
Subramanian was the chief economic adviser from October 2014 to June 2018 citing pressing family commitments and has returned to the US. In 2017 his term was extended for a year.

Gujarat will buy crisis-hit IL&FS stake in GIFT City, says CM Vijay Rupani

Gujarat will buy out the 50 per cent stake of beleaguered Infrastructure Leasing & Financial Services (IL&FS) in Gujarat International Finance Tec-City, or GIFT City, to ensure there are no delays to the project, said Chief Minister Vijay Rupani on Monday.
“We have taken an in-principle decision to buy out the IL&FS stake in GIFT City as we think this project has a very good future. Already, some of the world’s biggest banks and India’s top financial institutions have opened their offices there. We are encouraging every finance company to set up base there,” he said.
The value of the IL&FS stake is being currently determined.
The project was originally promoted by Gujarat Urban Development Company, a state government entity, and IL&FS. Both had equal stakes.
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Spread over an area of 359 hectares near state capital Gandhinagar, the completed project will have 62 million square feet of commercial, residential, and social real estate. This was supposed to be a competition to Mumbai, the financial capital of the country.
With IL&FS, which had management rights in GIFT City, defaulting on interest payment of its Rs 910-billion debt in September, the Rs 700-billion project has been jeopardised. The state government’s step is an attempt at damage control.
Rupani was in Mumbai on Monday to promote the Vibrant Gujarat investment summit, which will be held in Gandhinagar from January 18 to 22.
He said once GIFT City will be fully operational, it will change the dynamics of the region. “Many stockbrokers and information technology companies are enquiring with us to set up shop. With a single window facility, GIFT City has a good future and we want to support it,” he said.
Sources in the state government said once the government acquires the stake from IL&FS, it will look for a strategic investor who can take the project forward.
The project was the brainchild of Prime Minister Narendra Modi to develop Gujarat as a global financial centre. The development of the project took off when Modi was the chief minister.

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After a new board took charge of IL&FS in October this year, the three nominees of IL&FS on the board of Gift City — Hari Sankaran, K Ramchand and Arun Saha —were removed.
At present, IL&FS is represented by Malini Shankar. The new IL&FS board has already identified assets for sale and has appointed bankers to value the assets and invite bidders.
(With inputs from Rajesh Bhayani)