INSUBCONTINENT EXCLUSIVE:
for a client, giving it just about half of that money five years later, and making the company service the full amount thereafter.
But what
goes around, comes around
is now seeking to protect its assets from unpaid creditors trying to push it into bankruptcy.
Infrastructure Leasing Financial Services Ltd
had 30 years to spawn an Indian clone of Macquarie Group: a powerhouse of finance, investments, asset ownership and risk management
Instead, Ravi Parthasarathy, the founder who stepped down recently as chairman, went on to build an unwieldy, debt-fueled empire that has
Shareholders will have to move in to rescue ILFS in their meeting on Saturday.
What went wrong The $25 million that ILFS arranged in 1997
New Tirupur Area Development Corp., the borrower, was floated as a lifeline for a textile center in Tamil Nadu where industrial waste had
treat it and supply it to the town.
ILFS showed the way out
Let New Tirupur get a 30-year contract for private water supply and handling of sewage, and a reasonable 20 percent annual return to lure
investors who would share the equity risk with the government and ILFS
The financial institution, which was also one of the lenders to the project, paid its share in September 2002, just as work on the
water-treatment facility was about to start
less than 1 billion rupees.
The big hole was a 46 percent shortfall in the 900 million-rupee ($25 million) senior debt, owing to an
inexplicable 150 million-rupee deduction
had lain in an escrow account and bled, with net losses compounding at 12 percent a year
Thus, before New Tirupur could put a single brick on the ground, its stakeholders lost money they never even got to touch
The economics of the project became shaky, and a tussle began between equity holders and creditors
The government of Tamil Nadu had to pump in more public money
For ILFS to win, other stakeholders had to lose
Never mind if a 30-year concession on a toll road became a license to collect money from commuters in perpetuity
In New Tirupur, even state-run Life Insurance Corp
of India, the biggest shareholder in ILFS itself, saw its equity interest diluted
As a result, it had to give up its board seat in the water company.
The irony is that the same Life Insurance Corp
The employees seem to have fared very well: Parthasarathy took home $3.65 million in his last year.
Next will come the inevitable question
Why should a systemically important financial institution have units running border check posts in an Indian state, or computerizing land
records in the Philippines The empire that Parthasarathy built has to go under the knife, and pretty soon.
