The government on Monday moved the National Company Law Tribunal (NCLT), seeking suspension of the entire board of debt-laden Infrastructure Leasing and Financial Services (IL&FS) and to appoint 10 new directors with Uday Kotak as non-executive chairman of IL&FS Board.
According to a report in Moneycontrol, the government claimed that the directors have failed to discharge their duties, adding that the company has been showing a 'rosy' picture of its balance sheet. The government application to the tribunal named Ravi Parthasarathy, SB Mathur, RC Bhargava, Arun Saha, Michel Pinto, J Rao, Rina Karmath, Varsha Sawant, Manohar Waghle, among others, as parties in the IL&FS case.
The government counsel reportedly expressed concerns over the cascading impact of the IL&FS crisis on the overall economy. "Many mutual funds will collapse if IL&FS collapses," the counsel said, adding that besides AMCs, government securities would face selling pressure.
"The reason why the government is intervening in this matter is that the IL&FS case will have bearing on the entire economy," the counsel added.
The move to change the management of IL&FS comes after foreign shareholders were hesitant in putting more money unless there was a shake-up of the board. Domestic shareholders like LIC and SBI have also expressed their concerns in lending more money to the debt-ridden IL&FS with existing management at the helm.
LIC is its largest shareholder of IL&FS with a 25 per cent equity stake. Its second largest shareholder is Japan's Orix Corporation, which owns 23.5 per cent of the company. India's largest lender SBI holds the smallest stake in IL&FS at 6.42 per cent.
On Saturday, the two biggest shareholders of IL&FS - Life Insurance Corporation of India (LIC) and Japan's Orix Corporation - as well as State Bank of India agreed to subscribe to the rights issue by the company. In its annual general meeting, the IL&FS Board of Directors approved a rights issue of 30 crore equity shares worth Rs 4,500 crore at 150 per share. The rights issue will be completed by October 30, 2018.
Among other shareholders, Abu Dhabi Investment Authority, which controls 12.56 per cent stake in IL&FS reportedly will not participate in the rights issue. As for remaining stakeholders, IL&FS Employees Welfare Trust with 12 per cent, HDFC Bank with 9.02 per cent and Central Bank with 7.67 per cent, there position with respect to the rights issue is not clear yet.
IL&FS has an aggregate debt pile of Rs 91,000 crore which has been downgraded by ratings agencies to junk following repeated defaults. Out of this, the company owes Rs 57,000 crore to banks only, most of which are from the public sector. The company needs an immediate capital infusion of Rs 3,000 crore.
The IL&FS Board also approved company's specific asset divestment plan based on which IL&FS expects to reduce its overall debt by Rs 30,000 crores. Out of a portfolio of 25 projects identified for sale, firm offers have already been received for 14 projects, a statement by IL&FS said.
Debt defaults by certain group entities of diversified IL&FS have triggered fears of liquidity crisis in the financial markets and the RBI has been taking steps to improve the overall cash situation.
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