Eliminate the toxic culture of IL & FS by dismembering it


Eliminate the toxic culture of IL & FS by dismembering it.

The $ 12.8 billion bankruptcy of the fictional lender Infrastructure Leasing & Financial Services Ltd. begins to offer a glimmer of hope. It's time. Unexpected failures by the financier, owner and operator of Indian infrastructure led to a liquidity compression that put a strain on relations between the government and the central bank.

The good news is that the new government-appointed board of directors, which can solve the insolvency without the creditors investing in the assets held by 347 IT & FS companies, has developed three approaches sound. These can be mixed and matched to extract the most value.

The first of these three strategies – finding an investor at the group level – will not work immediately. Nobody really knows where the stock value of this tough empire lies. The reduction for this uncertainty would be great. Take the recent rights issue, management's latest attempt to inject cash before the government excluded them last month.

Only three years ago, India Life Insurance Corp., the largest shareholder, did not want to sell its stake at Rs. 750 per share; now he does not want to buy more, even 150 rupees per share. But why only talk about LIC? The Japanese company Orix Corp., the Abu Dhabi Investment Authority and other institutional shareholders paid no rupees to the rights issue that was bombed.

If IL & FS is sold in its current form, its toxic culture, which has been for three decades to inflate the values ​​of the project, to exchange partners, to treat autonomously by management and to build friendly relations with officials, will eventually revive.

The ideal time to hire a new investor would be when the vertical operating funds have been sold for the most part: for example, the roads leading to the National Highway Authority, and the electricity sector at the National Thermal Power Corp. That's what I recommended, approach the new council wants to consider.

The third strategy of finding a buyer for each road or plant separately would take a long time. In addition, projects stranded while waiting for a land allocation, an environmental clean-up or a financial closure would provide better value if they were associated with d & # 's; Other, generating stable cash flow.

The remaining strain would be a pure financier. Its participation in offshore companies may need to be substantially written off. But once operating assets begin to perform well under new owners, the $ 4.2 billion in credit the group has given them may be more likely to be repaid. This may attract a better investor to take over the ruins.

The new chairman, Uday Kotak, wishes to complete the resolution in six to nine months, subject to economic conditions and market conditions. One can understand the impatience. Nearly 38% of the external credit of the private infrastructure group comes from taxpayer funded banks. It is important to stabilize the default values. Nevertheless, liquidity considerations should not dominate.

Banker Kotak must eliminate the last footprint of founder Ravi Parthasarathy and his IL & FS team. Finishing well is more important here than concluding quickly.

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