Infrastructure Leasing & Financial Services

Infrastructure Leasing & Financial Services Limited (IL&FS) is an Indian infrastructure development and finance company.[5]

Infrastructure Leasing & Financial Services (IL&FS)
Public[1]
IndustryInfrastructure Development and Finance
Founded1987 [2]
Headquarters
Mumbai, Maharashtra
,
India
Key people
Websiteilfsindia.com

It operates through more than 250 subsidiaries including IL&FS Investment managers, IL&FS financial services and IL&FS Transportation networks India Limited (ITNL).[6] Its projects include some of the largest infrastructure projects in India including India's longest tunnel, Dr. Syama Prasad Mookerjee Tunnel, which opened for traffic in April 2017.[7]

After the company defaulted on its loans in 2018, the Government of India took control of the company and appointed a new board.

History

IL&FS was formed in 1987 as an "RBI registered Core Investment Company" by three financial institutions, namely the Central Bank of India, Housing Development Finance Corporation (HDFC) and Unit Trust of India (UTI), to provide finance and loans for major infrastructure projects.[8] Gradually, as the organization needed better financing, it additionally opened itself to two large international players, namely Mitsubishi (through Orix corporation Japan) and the Abu Dhabi Investment authority. Subsequently, Life Insurance Corporation India, Orix and ADIA became its largest shareholders, a pattern that continues to this day.[9]

Currently, its institutional shareholders include Life Insurance Corporation of India (LIC), ORIX and Abu Dhabi Investment Authority, with small shareholdings by a few Indian banks. State Bank of India (SBI) was a share holder till 2017, after which it sold its stake in the company. A few foreign investors including Greenspring associates remain investors in its subsidiary companies, especially IL&FS transportation and IL&FS infrastructure services.[10][11][12]

In 2012, A2Z Group acquired the property management subsidiary of IL & FS (IL&FS Property Management & Services Ltd) in a cash and stock deal. The deal was done through its subsidiary A2Z Infraservices Ltd for Rs250 million. While Rs70 million cash payment was made to IL&FS Infrastructure Equity Fund and IL&FS Employees Welfare Trust, the infrastructure major also took a 20% stake in A2Z Infraservices by way of a stock swap.[13]

In April 2019, its newly constituted board informed investors that the company had 302 entities through which it currently operates.[14]

Group companies
IL&FS headquarters at the Bandra Kurla Complex in Mumbai

IL&FS has 256 group companies as of 2018, including subsidiaries, joint venture companies and associate entities.[15] Though on the surface, the company appears to have 23 direct subsidiaries, 141 indirect subsidiaries (including special purpose vehicles for different projects), 6 joint ventures and 4 associate companies, each of them is further subdivided into additional legal entities, with much cross ownership as well as ownership by investment vehicles of various governments.[8]

While some of its subsidiaries (such as IL&FS Transport) ran into high losses in 2018 and found it difficult to repay their loans, others (such as IL&FS investment managers) posted profits of Rs.725 million in 2018, a 33% profit after tax.[16]

Some of them are listed below-

Infrastructure Services
  • IL&FS Energy Development Company Limited: energy sector arm involved in development of power generation and transmission projects
  • IL&FS Infrastructure Development Corporation Limited: advisory and project development
  • IL&FS Transportation Networks Limited: involved in the development and implementation of projects related to surface transport (highways, flyovers, bridges and roads)
  • IL&FS Environmental Infrastructure & Services Limited
  • IL&FS Education and Technology Services Limited (Headed by RCM Reddy)[17]
  • New Tirupur Area Development Corporation Limited (an SPV to implement the Tirupur Area Development Programme)
  • Noida Toll Bridge Company Limited (an SPV to operate and maintain the DND Flyway connecting Delhi with Noida)
Financial Services
  • IL&FS Financial Services Limited (Investment Banking Arm of IL&FS)
  • IL&FS Investment Managers Limited (domestic private equity fund management)
  • ORIX Auto Infrastructure Services Limited (services related to transport finance and transport infrastructure)
  • IL&FS Trust Company Limited - ITCL (services: debenture and bond trusteeship, trusteeship and investor representative for securitised paper, services as security trustee and facility agent, secure document management, scanning, processing and records management, and paralegal services)
Technology Services
  • IL&FS Technologies Ltd. (IT Arm of IL&FS group)

Projects

IL&FS has several projects in different sectors including Transportation, Area Development, e-Governance, Health Initiatives, Cluster Development, Finance, Power, Ports, Water and Waste Water, Urban Infrastructure, Environment, Education, and Tourism.

In 2009, it became the new promoter of the Maytas Infra Ltd. and in January 2011, Maytas Infra was taken over by IL&FS and renamed to IL&FS Engineering and Construction Company Limited[18] In September 2009, it picked up a "significant minority stake" in the Reliance Industries' special economic zone project in Haryana.[19]

IL & FS was the principal lender behind the construction of the 9.28 km long Dr. Syama Prasad Mookerjee Tunnel, located on the route of NH 44 in Jammu and Kashmir. Its work was started on July 2011 and the tunnel was opened for traffic after its inauguration by the Indian Prime Minister Narendra Modi on 2 April 2017. Built on an estimated budget of ₹3,720 crore (US$550 million), the main tunnel is 13 metres in diameter, while the parallel escape tunnel is 6 metres in diameter. The main and escape tunnels are connected by 29 cross passages located at intervals of every 300 metres. It is the first tunnel in India with a fully integrated tunnel system and is expected to reduce the distance between Jammu and Srinagar by 30.11 km (18.7 mi), reducing the travel time by two hours.

IL & FS also has large investments in its own subsidiaries, as well as in the equity market. In September 2018, these amounted to nearly Rs. 10,000 crores.[20]

Ownership

As of March 2018, the largest shareholders of IL & FS Investment services were as follows[21]

Defaults on bonds by IL & FS financial services

From July to September 2018, two out of IL & FS's 256 subsidiaries reported having trouble paying back loans and inter corporate deposits to other banks and lenders, resulting in the RBI requesting its major share holders to rescue it.[22] In July 2018, Hindu Businessline reported that the road arm of IL&FS was having difficulty making payments due on its bonds.[23] In the same month, Business Standard reported that its founder Ravi Parthasarathy would be leaving the firm due to medical reasons, after having headed the firm for 30 years.[24]

In early September 2018, Moneylife India reported that one of IL&FS's subsidiaries had been unable to repay a Rs. 1000 crore short term loan taken from SIDBI, resulting in SIDBI asking one of its officers to resign.[25] Subsequently, Bloomberg Quint, Business standard and Economic times reported that one of the IL & FS group of companies called IL & FS Financial services limited had defaulted on its commercial paper payments.[26] This led to news of a possible audit by the Reserve bank of India. IL&FS Financial Services Ltd., one of the group's many financial subsidiaries had defaulted on repaying about Rs. 450 crore worth of inter-corporate deposits to Small Industries Development Bank of India (SIDBI). On 27 September 2018, IL & FS Financial services informed the BSE that it had defaulted on a Rs 52.4-crore repayment of short-term deposits and Rs 104-crore term deposit.[22]

However, in its replies to investors and the BSE, IL&FS investment services (IVC) clarified that the news items did not relate to it, as these were two completely different legal entities.[27] A similar letter was published by IL & FS Transportation.[28]

On 1st Oct, 2018, the Government of India took steps to take control of the company and arrest the spread of the contagion to the financial markets. A new board was constituted as the earlier board was deemed to have failed to discharge its duties. The new board consisted of Kotak Mahindra Bank managing director Uday Kotak, former IAS officer & Tech Mahindra boss Vineet Nayyar, former Sebi chief G N Bajpai, former ICICI Bank chairman G C Chaturvedi, former IAS officers Malini Shankar and Nand Kishore.

The Serious Fraud Investigation Office (SFIO) started an investigation as there were huge procedural lapses and top management was not reachable. Newspapers reported the lavish salaries management had given itself at the expense of public money. In the absence of adequate supervision by RBI or shareholders or any claw back provisions on remuneration, the management treated the company as its fiefdom.[29]

On 2 April 2019, the SFIO arrested the former vice-chairman of IL&FS, Hari Sankaran, in Mumbai for fraud and causing wrongful loss to the troubled infrastructure lender. He was accused of granting loans to entities that were not credit-worthy or declared as non-performing accounts causing loss to the company and its creditors. The SFIO was granted custody of Sankaran till April 4.[30]

The initial SFIO probe revealed that there were major lapses in Deloitte's audit of the IL&FS.[31][32] The government had moved to ban Deloitte for its role in the default. However, the Bombay High Court passed an interim order to prevent "coercive action" by the government against the firm.[33]

In April 2020 the Indian government's Corporate Affairs Secretary, Injeti Srinivas, said he expected to recover a substantial part of the company's Rs 94,000 crore debt. He said it was strange that nobody foresaw the problem, whether it was statutory auditors, independent directors and credit rating agencies.[34]

On 8th June, 2020, IL&FS has concluded sale of its stake in GIFT City for 32 crore equity value. The sale would reduce its consolidated debt by more than 1200 crore. [35]

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References
  1. https://www.bloombergquint.com/business/government-moves-nclt-against-ilandfs#gs.LeI09ME
  2. "Infrastructure Leasing & Financial Services Limited: Private Company Information - BusinessWeek". Investing.businessweek.com. Retrieved 28 September 2010.
  3. "Board of Directors".
  4. "CS Rajan appointed MD of IL&FS, Vineet Nayyar named Executive Vice-Chairman". moneycontrol. Retrieved 5 April 2019.
  5. "Our work". Official website. IL & FS. Retrieved 29 September 2018.
  6. Bahl, Raghav. "IL&FS Lessons For PM Modi From Two Singhs, Manmohan And Jaswant". Bloomberg Quint. Opinion. Retrieved 29 September 2018.
  7. "IL&FS Transportation Networks Ltd - Chenani-Nashri Tunnel Project Page". Retrieved 2 April 2017.
  8. Duggal, Ira (8 August 2018). "The Rise And Stumble Of IL&FS". Bloomberg Quint. Retrieved 30 September 2018.
  9. "Group profile - genesis and foundation". ilfsindia.com. IL and FS official website. Retrieved 26 September 2018.
  10. "I & FS transportation - official website". Official website. IL & FS transportation networks ltd. Retrieved 26 September 2018.
  11. "Our portfolio". https://www.greenspringassociates.com. Greenspring associates. Retrieved 26 September 2018. External link in |website= (help)
  12. "Direct Investments". Greenspring Associates. 7 November 2013. Retrieved 7 November 2013.
  13. "A2Z acquires IL&FS". Reuters. Retrieved 5 March 2012.
  14. "Briefing on IL & FS 3 April 2019" (PDF). IL and FS Official website. IL&FS - Board of Directors. Retrieved 9 April 2019.
  15. "Funds worth Rs 160 bn getting stuck led to this mess: IL&FS tells staff". Business standard. PTI. 13 September 2018. Retrieved 26 September 2018.
  16. Annual report 2018. Mumbai: IL&FS Investment Managers. 1 August 2018. p. 7. Retrieved 18 October 2018.
  17. "Bloomberg - Are you a robot?". bloomberg.com. Retrieved 22 February 2019.
  18. C R Sukumar (1 September 2009). IL&FS may partner foreign firms to improve Maytas Infra position. livemint.com. Retrieved 2 September 2009.
  19. Arun Kumar (2 September 2009). RIL takes IL&FS on board for Haryana SEZ. The Economic Times. Retrieved 2 September 2009.
  20. "Valuations of the investments of IL & FS". Bloomberg Quint / SBI Cap report. 29 September 2018. Retrieved 29 September 2018.
  21. "Ownership pattern - March 2018" (PDF). ilfsindia.com. IL & FS - Investors corner. Retrieved 26 July 2018.
  22. Saxena, Ridhima (28 September 2018). "RBI Asks Shareholders To Rescue IL&FS". Bloomberg Quint. Retrieved 29 September 2018.
  23. "Debt downgraded, ILFS road arm says facing defaults". Hindu businessline. 22 July 2018. Retrieved 26 September 2018.
  24. Lele, Abhijit Madhav; Mukul, Jyoti (25 July 2018). "Three decades of Ravi Parthasarathy led to IL&FS's lateral growth". Business standard. Retrieved 26 September 2018.
  25. "IL&FS defaults on Rs1,000 Crore Short-term Loan from SIDBI?". Moneylufe India. 4 September 2018. Retrieved 29 September 2018.
  26. Mukherjee, Andy (17 September 2018). "The IL&FS fiasco represents India's domestic belt and road quicksand". Business Standard (originally reported by Bloomberg). Retrieved 26 September 2018.
  27. "Letter from company secretary, IL & FS Financial services to Bombay stock exchange". moneycontrol.com/. Money control. Retrieved 25 September 2018.
  28. "Letter from IL & FS Transportation (24 September 2018)" (PDF). IL & FS Transportation ltd. Retrieved 26 September 2018.
  29. Shah, Palak (2 October 2018). "Can the Centre's white knights rescue IL&FS?". Retrieved 3 October 2018.
  30. India, Press Trust of (1 April 2019). "First arrest in IL&FS case, former vice chairman Sankaran in SFIO custody". Business Standard India. Retrieved 2 April 2019.
  31. SFIO probe finds several lapses in Deloitte audit of IL&FS Financial Services, says report
  32. Govt may ban Deloitte over allegations of fraud in IL&FS audit
  33. "No coercive action against Deloitte in IL&FS case: Bombay HC". The Financial Express. 18 October 2019. Retrieved 15 February 2020.
  34. "Substantial recovery likely against IL&FS Rs 94k cr debt: Injeti Srinivas". Business Standard. 5 April 2020. Retrieved 28 April 2020.
  35. "IL&FS sells 50% stake in GIFT City to Gujarat govt, reduces consolidated debt by over Rs 1,200 crore". The Economic Times. 8 June 2020. Retrieved 9 June 2020.
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