India shadow banker rushes to sell assets

Investors are concerned that defaults by IL & FS will add to the mounting bad debts of banks

Infrastructure Leasing & Financial Services Ltd, an Indian shadow banker that defaulted on more than five of its obligations since August, is trying to sell assets as payments on more debt become due in the next few months.

A unit of IL & FS, which has been categorised as a “systemically important” non-banking financial firm by the Reserve Bank of India, re-designated its Chief Financial Officer Dilip Bhatia’s role and asked him to focus on selling assets, IL & FS Transportation Networks Ltd said in a filing on Saturday. IL & FS Transportation manages 28 road and five other non-road projects.

Investors are concerned that defaults by IL & FS, which has total debt of $12.6 billion — 61 per cent in the form of loans from banks and other financial institutions — could spread to other shadow banks in Asia’s third-largest economy. The firm, which helped fund India’s longest highway tunnel, hasn’t been able to pay more than Rs4.9 billion (Dh249 million or $68 million) of its obligations this year and has additional dues of about Rs2.2 billion to be repaid by end of October.

“Investors are wary about the credit issues more than liquidity issues,” said Rajesh Cheruvu, head of investment strategy at Sanctum Wealth Management Pvt. in Mumbai. “Some IL & FS bonds are coming up for repayment over the next 10 days. The market is nervous over those papers. Matters could become messy if there are more corporate ratings downgrades.”

IL & FS, which reported revenue of $2.6 billion in the year ended March 31, on Friday couldn’t make payments of Rs376.4 million on three non-convertible notes series with total outstanding of Rs4.5 billion.

Concerns

Investor concerns about contagion spreading from the beleaguered company played out last week. India’s benchmark stock index S&P BSE Sensex on Friday swung from a 1 per cent gain to a decline of as much as 3 per cent — its wildest intraday move in more than four years — before closing with a 0.8 per cent loss. Dewan Housing Finance Corp tumbled 43 per cent, while Indiabulls Real Estate Ltd dropped 13 per cent. The reason: DSP Mutual Fund sold Dewan Housing’s debt at a discount earlier in the week.

Apart from roads, the company manages water, port and power projects. It has identified 25 projects that it wants to sell, DSP Mutual Fund said in a note to investors earlier this month. “Investors are awaiting concrete announcements on the sale of assets and infusion of liquidity from shareholders,” said Mahendra Jajoo, head of fixed income at Mirae Asset Global Investment in Mumbai.