A revival plan presented by Infrastructure Leasing & Financial Services Ltd. was accepted by the National Company Law Tribunal today, paving the way for resolution of the debt-laden conglomerate’s problems.
Contagion Woes Prior To Takeover
IL&FS was taken over by the government after it defaulted on debt payments multiple times, sparking fears of a contagion in India’s financial markets. The new board, chaired by Uday Kotak, found that the group, with a debt of about Rs 91,000 crore, is far more complex than expected with a maze of 347 subsidiaries and associate companies. The Serious Fraud Investigation Office is also investigating IL&FS and its subsidiaries amid concerns of financial irregularities.
Troubles at the group had been intensifying since July, when company founder Ravi Parthasarathy stepped down, citing health reasons. The defaults began in August, adding to pressure on corporate bond yields and sparking a sell-off in the stock market. IL&FS’ investors include Life Insurance Corp., India’s largest life insurer; State Bank of India, its largest bank; and Housing Development Finance Corp, its largest mortgage lender. Japan’s Orix Corp. is the company’s second-largest shareholder.
Fixing the liquidity crisis at IL&FS is crucial for reviving confidence in the country debt markets especially when the economy is already grappling with rising global crude oil prices and a falling rupee.
Earlier today, IL&FS withdrew its application that was filed under Section 230 of the Companies Act, 2013. The previous board had filed an application under this section, seeking restructuring of the company’s operations. Section 230 empowers the National Company Law Tribunal to make an order that allows a company and its creditors to arrive at a compromise or arrangement.
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