MANU/PIBU/1382/2018

Department/Board : Press Information Bureau

Date : 01.10.2018

Firm and Decisive Government Action taken to preserve value and assets of IL and FS

IL&FS, incorporated in 1987, is a large Systemically Important Non-Deposit Accepting Core Investment Company (CIC-ND-SI). It has numerous infrastructure assets and has played a major role in infrastructure development and financing in the country. It has 169 group companies, as in 2017-2018, including subsidiaries, joint venture companies and associate entities. A series of defaults by IL&FS Group companies in August and September, 2018 on term-deposits, short-term deposits, inter-corporate deposits, commercial paper and non-convertible debentures and the rating downgrades in some and default on some other financial instruments has resulted into massive effect in the financial markets causing redemption pressure on the mutual funds, which held such financial instruments and has also adversely impacted the sentiments on the stock markets, money markets and debt markets. The redemption pressure on mutual funds has created a large systemic risk leading to quality papers being sold at steep discounts to meet the redemption demand. The debt market shocks got transferred to the equity market sparking sell off particularly in NBFC stocks and sectors linked with NBFC financing.

IL&FS Group, as per their latest Balance Sheet has infrastructure and financial assets exceeding Rs. 115000 crore is presently facing tremendous debt pressure and struggling to service around Rs. 91000 crore in debt which is the outcome of its mismanaged borrowings in the past. The financial mismanagement of the IL&FS is apparent from its rapid debt built up and misrepresentation of true state of financial fragility, which is being reflected in unprecedented rating downgrade from highly rated to a default category. Considering the capital base of the Group, the leverage is very high. The IL&FS Group is involved in many infrastructure projects including through equity and debt financing. Any impairment in its ability to finance and support the infrastructure projects would be quite damaging to the overall infrastructure sector, financial markets and the economy, considering its systemically important nature. The Government stands fully committed to ensure that needed liquidity is arranged for the IL& FS from the financial system so that no more defaults take place and the infrastructure projects are implemented smoothly.

The IL&FS Group, especially its subsidiary companies, IL&FS Engineering and Construction Company Limited (IL&FS Engineering) and IL&FS Transportation Networks Ltd. had got into major problems beginning 2012. This led to massive delays in execution of projects and a number of projects had become stalled infrastructure projects even before 2014. This affected their financial performance and significantly increased the leveraging as delayed projects were kept afloat by more and more debt financing. IL&FS Engineering had a series of losses beginning 2011-12 and minimal profit started after 2015-16. IL&FS Transportation Network Ltd. witnessed significant erosion of profit starting from 2012-13 and the net debt also increased more than two times from Rs. 13939 crore to Rs. 29961 crore in 2017-18. Deterioration in the financial performance and substantial leveraging of the IL&FS Group started many years ago on account of stalled projects in infrastructure sector largely owing to wrong decisions and policy paralysis before 2014.