The new board of the debt-laden IL&FS has proposed a multi-pronged strategy to revive the beleaguered company, including significant capital infusion at the group level from credible and financially strong investors, selling of subsidiaries at the vertical level and resolution at the asset level. The board said that while a resolution at the group level will be complex, asset-level sale may not find any buyers.

“The stakeholder engagement for Vertical Level Resolutions may be less complex than Group Level Resolution, given the potential inter-linkages within the same vertical,” stated a report submitted to the National Company Law Tribunal (NCLT) on Wednesday by the company board headed by Uday Kotak. According to the report, the board will work towards the final resolution, in stages and parts, over the next 6-9 months.

Next hearing on Dec 3

The Tribunal set December 3 as the next date of hearing. It asked the MCA to furnish information on the number of entities within the IL&FS group for whom the corporate insolvency resolution process has been initiated.

According to the ‘Report on Progress and Way Forward” submitted by the new board, the overdue amounts relating to financial debt (comprising defaulted principal amounts and interest payments) within the IL&FS group aggregate to ₹4,776.1 crore. The financial sector, including banks, had an exposure of about ₹91,000 crore to the IL&FS group as at March-end 2018.

The report stated that the Final Resolution will inevitably involve substantial deleveraging through significant capital infusion (either from existing or new investors); asset monetisation to retire debt; and resolution/ compromise with the creditors.

The new board has sought full stand-alone and consolidated audit to be undertaken by the statutory auditors for six months ended September 30, for IL&FS and certain group companies.

It will review documentation concerning the arrangements of the IL&FS Employees Welfare Trust and its inter-connection with IL&FS and its group companies has been initiated.

Austerity measures

The board has implemented austerity measures such as reduction of sitting fees of boards and its committees and 10 per cent salary rationalisation for all employees with a cost to company of ₹50 lakh or above.

While recognising the complexities and challenges, the new board is additionally facing a significant challenge of lack of reliable information and gaps in the data in working towards a resolution.

“The new board has noted that under the previous management, there was no suitably empowered central financial control function that maintained information and accuracy at the group level. Critical decisions on prioritising use of funds and making payments were taken by individual entities without a central control function,” the report said.

It said the board has come across circuitous transactions to circumvent regulatory prescriptions. For example, an asset of the IL&FS group being transferred from one entity within the group to another within the group at ₹30.8 crore and in just about a year, the same asset was sold to a third party for ₹1 crore.

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