MUMBAI: Indias structured finance market, cash conduit to lower-rated borrowers, could head into a lockdown if special purpose vehicles (SPV) of ILFS are allowed to skip repayments to investors until bankruptcy courts resolve debt at infrastructure financier and its subsidiaries.
India Ratings and Crisil have both hinted at sharp downgrades to D, or default grade, for outstanding loans and debt at SPVs if repayments are stopped at those operating units.
India Ratings and Crisil have rated bonds issued by five such companies - Jharkhand Road Projects Implementation Company, Hazaribagh Ranchi Expressway Ltd, Jorbat Shillong Expressway, North Karnataka Expressway and West Gujarat Expressway.Total outstanding bonds would be worth Rs 3,300 crore for five SPVs, while bank loans could be in range Rs 15,000-20,000 crore for all such SPVs, showed market estimates by two market sources that are involved in matter.
There are about 330 such SPVs in ILFS group.Ajim Premji Trust, Pioneer Independent Trust, Food Corporation of India, and Postal Life Insurance Fund are some of investors in those SPVs, market sources said.
Some domestic mutual funds also hold those debt papers.If structured mechanism comes under pressure for problems at holding company level, then faith of market in structures will disappear, said Nilesh Shah, Managing director, Kotak Mutual Fund.
The capital market will be open for highest rated borrowers only."ILFS declined to comment on matter, while individual investors could not be contacted immediately.We had put all five special purpose vehicles under negative watch last year pending resolution of ITNLs role in managing maintenance of roads, said Ananda Bhoumik, MD, India Ratings.
Based on latest communique, move looks regressive for access to financing for infrastructure SPVs.ILFS Transportation Networks (ITNL) is a wholly-owned subsidiary of ILFS.
If SVPs are able to stop payments, ratings on bonds would have to be downgraded to IND D, he said.ILFS has cited a court order by National Company Law Appellate Tribunal (NCLAT) while claiming that its SPVs are entitled to a moratorium on repayments.
The NCLAT extended a moratorium after giving initial relief until final hearing.
The Ministry of Corporate Affairs filed an application with NCLAT after National Company Law Tribunal rejected application for a moratorium in October.ILFS has written letter to IDBI Trustee, which is entrusted with task of protecting interest of bond holders.The trustee is mulling legal option.
It is likely to go to NCLT, which will decide whether a moratorium will apply to all such SPVs, said a senior executive, who did not wish to be named.All operative companies will be hit due latest SPV move, said a senior executive.
Based on available legal opinions, CRISIL understands that NCLAT order does not pose restrictions on regular debt servicing, rating agency said in a report."Debt servicing on these bonds is not an issue.
If you want your money back, it has a moratorium," said a senior manager at a fund house.However, NCLAT made a reference to all such SPVs in its earlier order.