SFIO un­cov­ers se­ries of wrong­do­ings

Financial Chronicle - - DIVE -

SFIO has also un­cov­ered shock­ing de­tails of ram­pant wrong­do­ings in the em­bat­tled IL&FS group like mis­re­port­ing of in­come, du­bi­ous trans­ac­tions, con­flict of in­ter­est, ever-green­ing of loans and per­sonal en­rich­ment of key em­ploy­ees, the source said.

The modus operandi of IL&FS on loans and ad­vances is sim­ple. The in­fras­truc­ture giant pro­cured funds from the mar­ket through short-term in­stru­ments and in­vested them in group com­pa­nies by way of giv­ing them longterm loans and ad­vances, which is prej­u­di­cial to the in­ter­est of the com­pany in terms of sol­vency as the short­term debt would ma­ture im­me­di­ately, whereas, no sources were avail­able for ser­vic­ing of the ma­tured short-term debts, as the funds were blocked in the long-term loans.

How­ever, the min­istry ob­served due to strained fi­nan­cial po­si­tion of many spe­cial pur­pose ve­hi­cles (SPVs) formed for var­i­ous projects, par­tic­u­larly in the trans­port sec­tor and the power sec­tor, th­ese en­ti­ties were un­able to ser­vice their bor­row­ings and also failed to pro­cure fresh funds from in­sti­tu­tional lenders. “Dur­ing th­ese stressed times, IL&FS and its key sub­sidiaries such as IFIN and ITNL were still able to raise short-term mar­ket fund­ing through is­suance/sale of com­mer­cial pa­pers or in­ter cor­po­rate de­posits based on its ob­tained good credit rat­ing,” the re­port said.

“It would then pass on th­ese short­term loans to its pro­ject SPVs or group com­pa­nies, for help­ing them ser­vice their debt obli­ga­tions, man­age­ment be­ing fully aware, thereby avoid­ing pos­si­ble de­faults and in the process in­creas­ing their in­debt­ed­ness on a stand­alone ba­sis,’ it added.

On the con­trary, cash flows dur­ing FY17 to FY18 were dis­ap­point­ing in both IL&FS and its group en­ti­ties. “The stand­alone cash flow state­ments and con­sol­i­dated cash flow state­ments of IL&FS for last two fi­nan­cial years show no pos­i­tive cash flow from the op­er­a­tions at the com­pany level as well as group level. So the neg­a­tive cash flow from op­er­a­tions were met through funds from se­cret fi­nanc­ing ac­tiv­i­ties, par­tic­u­larly by in­creas­ing the short-term bor­row­ings,” the in­terim re­port said.

“By adopt­ing this model of cov­er­ing of op­er­at­ing losses through short-term bor­row­ings, the com­pa­nies fur­ther post­poned pos­si­ble de­faults to fu­ture pe­ri­ods. Fur­ther, de­spite this con­tin­ued neg­a­tive cash flow, the com­pany didn’t put in place any cost sav­ing or aus­ter­ity mea­sures and con­tin­ued with its prof­li­gate ex­pen­di­ture, es­pe­cially on its top man­age­ment,” it added.

To as­cer­tain key ex­ec­u­tives’ role in this fi­nan­cial mess, SFIO had ear­lier sought ev­ery in­di­vid­u­als’ de­tails of as­sets, which, ac­cord­ing to the lat­est re­port, have been submitted.

How­ever, the re­port said for­mer IL&FS chair­man Parthasarathy had de­clared Rs 98.98 crore mov­able prop­er­ties be­sides four im­mov­able prop­er­ties, while for­mer man­ag­ing di­rec­tor Hari Sankaran de­clared Rs 19.04 crore mov­able prop­er­ties and three im­mov­able prop­er­ties.

For­mer joint man­ag­ing di­rec­tor Arun Saha de­clared Rs 59.49 crore mov­able prop­er­ties be­sides nine im­mov­able prop­er­ties and for­mer CIO Vib­hav Kapoor de­clared Rs 22.47 crore mov­able prop­er­ties and two im­mov­able prop­er­ties.

For­mer IFIN man­ag­ing di­rec­tor and CEO Ramesh Bawa de­clared Rs 32.72 crore mov­able prop­er­ties and five im­mov­able prop­er­ties. K Ram­c­hand, for­mer man­ag­ing di­rec­tor of ITNL de­clared four im­mov­able prop­er­ties.

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