INSUBCONTINENT EXCLUSIVE:
The Indian government, which seized control of debt-laden financier Infrastructure Leasing Financial Services Ltd., has pledged to ensure
the beleaguered lender has the money to prevent further defaults.Superseding the board of ILFS, which has defaulted on more than five of its
obligations, was essential to restore the confidence of the financial markets, according to a statement by the finance ministry on Monday
The ministry said there have been "serious complaints" about some ILFS group companies and an investigation by the federal Serious Fraud
Investigation Office has been ordered.Government officials on Monday ousted ILFS's management and instituted a new six-member board that
includes India's richest banker Uday Kotak and ICICI Bank Ltd
The dramatic move underscored the government's concern that defaults at the systemically important shadow bank may spread to other lenders
in the world's fastest-growing major economy
The nation has sought to take control of a company on just two prior occasions, and only followed through once, with Satyam Computer
in 2009."The government stands fully committed to ensure that needed liquidity is arranged for the ILFS from the financial system so that no
more defaults take place," the finance ministry said in the statement, without providing specific details
"It is hoped that financial institutions would be supportive for providing urgent liquidity."The newly-constituted ILFS board must devise a
plan for the group and file a response to the National Company Law Tribunal by Oct
The tribunal will next hear the matter on Oct
The other board members named on Monday include former head of the Securities and Exchange Board of India GN Bajpai and retired bureaucrat
Vineet Nayyar.Turning the group around will require a combination of asset sales and fresh fund infusions by investors and lenders, the
A restoration of confidence in the credibility of the ILFS management was also imperative, it added, as was the need to avoid "any
sub-optimal liquidation of assets."The indebted group can raise 600 billion rupees by selling assets, according to its biggest shareholder
The nation's largest life insurer is open to subscribing to ILFS's rights offer, LIC Chairman V.K
Sharma said last week.Other investors in ILFS include Japan's Orix Corp., the second-largest shareholder in the company, Abu Dhabi
Investment Authority and Housing Development Finance Corp., India's biggest mortgage lender."The solution would need to address how to
prevent massive write downs by the banks, not merely by regulatory engineering -- as that would simply defer the real problem by a few
years," said Krishnava Dutt, a managing partner at law firm Argus Partners
"As I see it, someone now needs to bite the bullet."Shares of the group's listed subsidiaries climbed in Mumbai before the decision was
ILFS Transportation Networks Ltd., which develops and maintains toll highways, surged nearly 19 percent to close at 26.80 rupees, paring the
year's slump to 68 percent
Fund manager ILFS Investment Managers Ltd
advanced about 10 percent
India's markets are closed Tuesday for a public holiday.Kotak, managing director of Kotak Mahindra Bank Ltd., has been named as the
non-executive chairman of ILFS, the Ministry of Corporate Affairs said in a statement on Monday.The new board, while a step in the right
direction, may not be able to help revive confidence unless the government bails out the lender, S
Santhanakrishna, partner at accounting firm PKF Sridhar Santhanam LLP told BloombergQuint.Rock SolidILFS funds infrastructure projects
across Asia's third-largest economy
Its defaults on commercial paper, once considered rock-solid, from August sparked concern among households holding mutual funds invested in
such debt, and forced banks, mutual and pension fund managers to brace for further losses.There was also concern that the group's troubles
could spread to other shadow banks and crimp Prime Minister Narendra Modi's infrastructure plans before elections next year.(Except for
the headline, this story has not been edited by TheIndianSubcontinent staff and is published from a syndicated feed.)
