INSUBCONTINENT EXCLUSIVE:
By Andy MukherjeeThe $12.8 billion bankruptcy of shadow lender Infrastructure Leasing Financial Services Ltd
Unexpected defaults by the financier, owner, and operator of Indian infrastructure assets have caused a liquidity squeeze, which has brought
strained relations between the government and the central bank to breaking point.
The good news is that the new government-appointed board,
which can resolve the insolvency without creditors swooping in on assets held across 347 ILFS firms, has drawn up three sensible
Nobody quite knows where the equity value of this unwieldy empire lies
The discount for that uncertainty would be large
single rupee to the rights issue, which bombed
If ILFS is sold in its present form, its toxic culture, which has for three decades involved inflating project values, shortchanging
partners, self-dealing by senior management, and building cozy relationships with civil servants, will eventually revive.
The time to bring
in a new investor would be when operating verticals have been mostly sold: for instance, roads to the National Highway Authority, and the
electricity business to the National Thermal Power Corp
each road or power plant separately, would be time-consuming
Besides, projects that are stuck awaiting land allotment, environmental clearance or financial closure would deliver better value if bundled
together with others yielding stable cash flows.
The stump that would remain would be a pure financier
Its equity interest in the offloaded businesses may have to be substantially written off
But once the operating assets start performing well under new owners, the $4.2 billion in credit the group has extended against them may
have a greater chance of being repaid
That may attract a better-quality investor to take over the ruins.
New Chairman Uday Kotak wants to complete the resolution in six to nine
months, subject to economic and market conditions
One can understand the impatience
As much as 38 per cent of the external credit for the privately owned infrastructure group has come from taxpayer-funded banks
Finishing well is more important here than concluding quickly.
This column does not necessarily reflect the opinion of the editorial board
or Bloomberg LP and its owners.
