Kotak expects to recover 50% of IL&FS' debt

The Uday Kotak-led board of directors expects to recover and resolve for more than half of the outstanding debt of ₹94,216 crore that shadow banker and construction firm Infrastructure Leasing and Financial Services (IL&FS) owes its lenders. A year since Kotak took over the operations at IL&FS as Board Chairman, the banker said that given the several challenges to saving IL&FS from the brink of bankruptcy, he hopes to complete the bulk of the resolution process in 6 months, that is by March 2020.

"We're doing a lot of analysis," Kotak said in a press conference here on Tuesday. "Based on informal discussions, and in good faith, my view is that we can resolve, restructure and recover above the 50% mark."

The new board of directors, led by Kotak, were appointed by the Ministry of Corporate Affairs on 4 October 2018 to resolve the IL&FS crisis as the financial behemoth had begun to default on debt repayments. "The government took a potential systemic issue and brought in a period of calm. No asset (in the group) has imploded; we have kept the assets alive," Kotak said.

Kotak's term as Chairman of the board has been extended till October 1, 2020.

With all assets within the group still awaiting sale, Kotak said that the board has received bids for 10 of its 14 operating road assets on the block. Of this, the board has sent binding bids for 5 assets - totaling ₹7500-8000 crore - to the respective committee of creditors for approval. These bids will be against outstanding debt of ₹9500 crore on the 5 roads.

The remaining 5 roads received bids of roughly ₹4850 crore. With the board unhappy with the value recovered on these offers, it has decided to explore the option of creating an infrastructure investment trust (InvIT) to which the combined debt of ₹10830 crore (on the 9 remaining roads within the group) can be transferred. Kotak said the board will consider the InvIT option seriously and present both to the assets' lenders before finalising on the resolution process. He said the company has not yet decided on what form the InvIT will take, whether it will be public or private or whether it will invite outside investors. "But the success of the Embassy REIT gives us confidence to look at InvITs as a viable option," Kotak said.

The board has also received binding bids of ₹630 crore for 4 assets in the education arm and one bid for the overseas Chonqing Yuhe road where 100% of the ₹1600 crore debt will be recovered. The sale of real estate assets which is expected to bring in ₹3000-3500 crore is in progess, the board said. Of this, the sale of the headquarters in Bandra-Kurla Complex is expected to bring in ₹1500 crore on a conservative estimate, Kotak said. The board is also in talks to government bodies where it is a joint venture partner in infrastructure assets for the resolution process. The NCLT has already approved the sale of the wind power assets to Japan's Orix Corp for ₹4320 crore.

Through recovery of loans, claim settlements from concession authorities and cash conservation, IL&FS' cash balance stood at ₹5300 crore as of August 2019.

Offering a one-year update on the progress of the resolution process, the board said it has readied a resolution for all 302 entities within the group. Of the domestic entities, 55 entities have been identified for monetisation, 8 real estate assets for sale, 6 entities for restructuring, and 83 for liquidation/striking off. Domestic entities account for ₹89,247 crore of outstanding debt. Of the 133 foreign entities, 16 are slated for sale while more than 100 are marked for liquidation or restructuring.

Offering scathing criticism of the running of operations under the previous management, Vineet Nayyar, Executive Vice-Chairman of the current board, said expenditure had been lavish at IL&FS. "There was no value for money. I have never seen so many automobiles in a company as I have seen here." Nayyar, who was the government's turnaround man for Satyam Computers, said that despite the crisis at Satyam, it had been a much better managed company. "Setting it right had been a cinch, we did not need to overhaul the running of the company. But here, there was no way a single group of people can manage over 300 companies. There has to be an element of economy in everything you do. (IL&FS) is a lesson is what not to do."