FIVE SUBSIDIARIES WIPED OUT ALL IL&FS PROFIT FOR FY18

A power company, a maritime infrastructure company, a metro rail project, a tunnel and a border checkpost in Madhya Pradesh wiped out more capital for beleaguered infrastructure player IL&FS than all its other activities put together.

Subsidiaries involved in these projects had a collective loss of ~13.2 billion for the financial year ending March 2018 or 70 per cent of the consolidated loss for IL&FS of ~18.9 billion.

The subsidiaries involved are IL&FS Tamil Nadu Power Company, IL&FS Maritime Infrastructure Company, Rapid MetroRail Gurgaon South, Chenani Nashri Tunnelway and MP Border Checkpost Development Company. IL&FS had either majority or 100 per cent shareholding in all these.

This is not to say that other projects had an easier time. For example, its investment in Dighi Port (DPL) had already landed in insolvency.

“The recovery of the value of equity shares of DPL will largely depend upon the positive outcome of the business revival plan, resolution process of the NCLT (the insolvency tribunal) and additional infusion of equity capital. The company is confident of resolution of the matter. It had, in the earlier year, recognised impairment loss of ~744 million,” noted the annual report.

Other project subsidiaries have faced issues on account of ‘material reaches/defaults by authorities’ of their agreements. The company said it had claimed damages and was looking at the possibility of terminating the contracts if no satisfactory resolution was arrived at.

“The Group is carrying intangible assets aggregating to ~74,478.7 million with respect to these subsidiaries and the management is confident of recovering the above amounts,” went the annual report.

This has meant many large subsidiaries had significantly higher liabilities than assets. Key companies in which this was seen, according to annual report numbers, include IL&FS Financial Services (minus ~23,997.49 million), IL&FS Energy Development Company (minus ~49,185.86 million).

IL&FS Tamil Nadu Power Company (minus ~30,659.82 million) and IL&FS Transportation Networks (minus ~41,812.98 million).

The degree of stress has not been uniformly recognised. For example, a report from foreign brokerage Nomura Financial Advisory and Securities noted differences in the way that banks have treated the debt of IL&FS Energy Development Company.

“We understand that there is a difference in NPA (non-performing asset) recognition by banks for this asset,” said the September 11 note, titled ‘Assessing risk from IL&FS Group’, authored by research analysts Adarsh Parasrampuria, Amit Nanavati and Riddhi Jain.

A total of 121 of the over 200 subsidiaries, joint ventures and associates recorded some loss during the financial year ending in 2018. Ninety of the entities recorded some profit.

There had been worry that their underperformance and recent defaults could result in a contagion in the country’s financial markets. Public sector banks (PSBs) have greater exposure.

“Of the ~ 365 billion of debt we could locate for subsidiary companies of IL&FS Group, PSBs hold 70 per cent of the debt, private banks hold less than 10 per cent and large institutions/ Life Insurance Corporation/foreign banks hold the rest,” noted the Nomura report.

They lost more money than was made by the holding company and 200-odd other subsidiaries, joint ventures and associates put together