IL&FS may boost authorized capital by up to ₹5,000 crore

MUMBAI: Infrastructure Leasing and Financial Services Ltd (IL&FS) is planning to boost its authorized share capital by ₹4,000-5,000 crore to enable the cash-strapped group to raise money from its shareholders.

The move is aimed at meeting the group’s immediate repayment obligations and avoiding further debt rating downgrades, according to two people with direct knowledge of IL&FS Group’s plans.

IL&FS’s board will meet on 29 September to consider raising the authorized share capital from ₹1,500 crore and, subsequently, shareholders will vote to approve the proposal at the company’s annual general meeting, said one of the two people cited above.

Expanding the authorized capital, or the maximum value of securities that a company can legally issue, will allow IL&FS to raise much-needed funds.

“We are confident that the resolution will be passed. This will help significantly in tackling the liquidity issue and meet repayment demands,” said the first person. Alongside, the board will also approve a proposal to sell assets worth as much as Rs. 20,000 crore held by the company and its units, the person said. IL&FS has 24 direct and 135 indirect subsidiaries.

IL&FS, which has defaulted on several payments in the past two months following a liquidity crunch, is taking steps to raise money from its shareholders as well as sell assets to meet its immediate obligations.

As of March 31, IL&FS’s issued share capital was Rs. 985.93 crore.

Its subscribed and paid-up share capital was ₹983.15 crore, comprising 128.4 million shares, 1.13 million non-convertible redeemable cumulative preference shares (NCRCPS) of ₹7,500 each and 5 million NCRCPS of ₹10 each. Investors are, however, concerned that further defaults could have a contagion impact on other lenders.

“IL&FS is only facing a temporary liquidity issue. The group has good quality assets and as per the authorized valuers, the value of IL&FS assets is more than its liabilities. Shareholders are ready to put in more money into the group due to IL&FS’s asset quality. But, the limit of authorized capital is restricting the group from raising additional money from its shareholders,”

said the second person. Once the authorized capital is expanded, the group will be able to raise money through rights issues, preferential shares and private placements of equities, the person said.

Typically, an infrastructure company takes a loan from a bank for a certain period of time to complete a project. But project delays, often because of regulatory clearances, result in cost overruns. Earlier, banks used to refinance these cost overruns and the loan taken, but since the banks themselves are over-leveraged, there has been a halt in refinancing activities.

Apart from increasing the authorized capital, IL&FS is also planning to raise funds through sale of a number of assets.