MUMBAI: Lenders to Infrastructure Leasing & Financial Services (IL&FS) have declined to provide additional loans of Rs 3,500 crore to the term-lending institution unless a resolution plan explaining how debt will be repaid is put in place, three senior bank officials told ET. The development comes as shareholders of the company have voted in favour of raising Rs 15,000 crore in the form of debt while the IL&FS bonds trustee had barred it from distributing any dividends. IL&FS, under threat if its proposed rights issue fails and if lenders move the bankruptcy court to recover dues, has sought a one year loan of Rs 3,500 crore to meet payment obligations. “Any additional funding — be it a rights issue or additional line of credit — will depend on the resolution plan,” said Rajnish Kumar, chairman of State Bank of India (SBI). “The resolution plan will have to be comprehensive, which we expect should include plan of repayment of dues in an orderly manner and change of management. However, we will continue to support well-rated finance companies.”
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After the finance company defaulted on payments to bondholders and bankers, debenture trustees Centbank Financial Services opposed IL&FS declaring any dividend to shareholders. At Saturday’s annual general meeting, shareholders approved withdrawal of dividend payments, the raising of Rs 15,000 crore through bonds, increasing the borrowing limit to Rs 35,000 crore, reappointing Arun Saha as joint MD and CEO for five years and generating funds through the rights issue. IL&FS and most of its subsidiaries are not able to meet payment obligations, prompting lenders to the Mumbai-based infrastructure development and finance company to demand a comprehensive revival plan. On Saturday, the company had informed regulators that it was unable to pay interest and principal of Rs 47.7 crore due to banks on that day. Similarly, last Friday it had said it was unable to meet its obligation Rs 223.3 crore to lenders. In the past few days, the group has also defaulted on commercial papers and bonds. IL&FS has total borrowings of more Rs 90,000 crore and over 100 step-down subsidiaries involved in financing, road, port, power and engineering. “Unless we know how the company plans to repay the loan, the board of the banks will not provide additional loans,” said a senior official at one of the lenders to IL&FS. “Lending to the step-down subsidiaries is also ruled out since the parent company is rated below investment grade. Secondly, the demand for loan is to repay other borrowing which by itself is not a viable model.” On Saturday, IL&FS appointed turnaround expert Alvarez & Marsal to prepare a detailed restructuring plan. Senior banking industry officials said IL&FS will need Rs 300-500 crore every month to meet its payment obligations, unless it sells off some assets quickly to generate cash. The company has proposed to raise Rs 4,500 crore by October-end by way of a rights issue. So far, only Life Insurance Corporation (LIC), the largest shareholder in IL&FS with 25.3% stake, and Japan’s Orix Corporation, which holds 23% stake, have shown interest in subscribing to this. Abu Dhabi Investment Authority, which holds a 12.5% stake in the firm, HDFC (9%), Central Bank of India (7.6%) and SBI (6.4%) have not yet committed to subscribing to the rights issue. Rating agencies have downgraded IL&FS’ nonconvertible debentures and commercial paper from triple A to junk. This sparked panic among equity investors even as several non-banking financial companies (NBFCs) faced turmoil amid a default scare. The companies have denied they are in any similar kind of trouble.