Man in the muddle
Once the troubled infrastructure financier’s face in Delhi, Sankaran is confident a forensic audit of IL&FS would clear him of any wrongdoing
For close to 28 years, Hari Sankaran, former vice-chairman and managing director of IL&FS, was busy charting the course of the infrastructure financier alongwith its former chairman Ravi Parthasarathy. But after an ailing Parthasarathy left for London for medical reasons in July this year, it was Sankaran who was left to steer the group in its most trying times.
57-year-old Sankaran, who is well-known in Mumbai’s corporate circles as “quick-witted” and “someone who gets along well with people”, is also considered Parthasarathy’s alter ego. Many considered Sankaran part of Parthasarathy’s inner circle, along with Vibhav Kapoor, K Ramchand, and Ramesh Bawa, who made the crucial decisions about the group.
“Sankaran has close contacts with top government officials and was instrumental in getting government contracts for IL&FS. While Parthasarathy preferred to remain in the shadows, it was Sankaran who was the face of the organisation in New Delhi,” said a banker who worked closely with IL&FS.
In his petition filed with the National Company Law Tribunal earlier this week, Sankaran denied all allegations of siphoning off funds from IL&FS and said his personal wealth is limited to two flats and employee stock options in IL&FS and some of its group companies.
Sankaran joined IL&FS as its chief economist in 1990, after completing a master’s degree from the London School of Economics and Political Science with expertise in public policy, regulation, infrastructure project development, and project recourse financing. In his various capacities in IL&FS, Sankaran spearheaded public-private partnerships (PPPs) across various infrastructure sectors including roads, power, water, waste management, education, urban infrastructure and e-governance.
“Funding infrastructure projects in India is a highly challenging job. Though IL&FS grew exponentially in the last three decades, its debt also went up to ~910 billion by March this year, and with government companies and other customers not releasing funds, many of its companies started defaulting,” said head of a mutual fund asking not to be named. “If a company sets up an infrastructure project in India, it should be ready for at least five to ten years of cost overrun and extra funding,” he added.
This was also a stand taken by Sankaran. Denying any “cover up” or malafide intentions, Sankaran said in court filings that he was questioned by Serious Fraud investigation Office (SFIO) on the IL&FS matter and is cooperating with the authorities.
Sankaran said IL&FS took several steps to bring the company back on track starting 2015 when a proposal was made by Piramal Financial Services to merge its operations with the company, which would have generated ~85 billion of investible funds for the merged entity. But this proposal was nixed by Life Insurance Corporation which sought a better valuation than what was paid by Piramal. LIC is the biggest shareholder in IL&FS with a 25 per cent stake in the company and had a board seat in the unlisted parent company. Still, Sankaran said, they managed to sell two assets — IL&FS Trust Company to Vistra Group of Hong Kong and a 49 per cent stake in IL&FS Wind Energy Platform to Orix to show a profit in that year.
But to make matters worse, from fiscal 2017 onwards, macro-economic factors continued to make it extremely difficult to raise finance in the infrastructure industry. The debt in the group, particularly in IL&FS Transport Networks (ITNL), kept mounting. In November-December 2017, a term sheet was signed by IL&FS with Lone Star, a Texas (USA)-based fund, under which Lone Star agreed to infuse about ~63 billion (US$ 965 million) as equity into ITNL, effectively acquiring the subsidiary and providing funds to service group debts. This fund infusion, however, was subjected to “standstill obligations” up to June 30, 2018, pending ITNL fulfilling some preconditions. In March this year, ITNL also received permission to launch a $300 million bond but this attempt was also unsuccessful. A successful closure of the US dollar bond issue would have repaid the debt funding provided by IL&FS and IL&FS Financial Services to ITNL, Sankaran said.
But the crisis took a turn for the worse after Lone Star decided to walk out of the deal in July this year. This led to a cascading effect — leading to the fall of IL&FS.
Though the company’s board belatedly decided to launch a ~45 billion rights issue and seek a ~35 billion line of credit from LIC and SBI in September this year, the promised money did not come. On August 29, one of its lenders, Small Industries Development Bank of India, informed the Reserve Bank of India about a default which led to action by the regulator against IFIN, which exacerbated the company’s financial misfortunes.
Sankaran, who has not had access to his office in the swanky IL&FS building since early this month, said a forensic audit of the company by an international audit firm will clear any doubts that there was no fund diversion from the company. Given the murky information swirling around this once sterling infrastructure financier, this may be a good suggestion for the new board to act on.