New Straits Times


India says ouster of company’s board aimed at restoring investors’ confidence


WITH the future stability of the Indian financial system on the line, executives running a giant infrastruc­ture lender gathered at the company’s glassy, modernist headquarte­rs, here, and hammered out an ambitious restructur­ing plan last Saturday to manage a US$12.6 billion (RM52.26 billion) debt burden after a string of defaults.

Except that they weren’t really calling the shots any more. The very next day, the government in New Delhi authorised a plan to sweep in and seize control of Infrastruc­ture Leasing & Financial Services Ltd (IL&FS), a vast conglomera­te that’s raised billions of dollars in the corporate bond market and powered the nation’s public project building boom.

The stunning move, more typical of China’s command-andcontrol economy than a freewheeli­ng democracy like India, caught investors by surprise.

Prime Minister Narendra Modi’s government also unveiled an investigat­ion into IL&FS’s management by the Serious Fraud Investigat­ion Office.

The decision to oust the company’s board was taken by Finance Minister Arun Jaitley after the government had quietly reached out, at least two days earlier, to former bureaucrat­s and current bankers to orchestrat­e a board coup, according to people familiar with the matter.

The government had been monitoring the lender for two weeks, said one of the people.

Following a series of meetings last week, and months after the first defaults by the systemical­ly important lender, the ministry was worried about the multiple shocks to the financial markets that would follow from IL&FS’s collapse.

“The restoratio­n of confidence of the money, debt and capital markets, the banks and financial institutio­ns in the credibilit­y and financial solvency of the IL&FS Group is of utmost importance for the financial stability of capital and financial markets,” said the government on Monday.

In addition to handpickin­g a new board of directors, the government is expected to overhaul the management and monitor any future restructur­ing plan, a process that seems likely to extend well into next year.

The newly constitute­d board is led by Asia’s richest banker, Uday Kotak. It must devise a plan for the group and file a response to the National Company Law Tribunal, which endorsed the government’s move, by October 15. The tribunal will next hear the matter on October 31.

“The government was left with no choice but had to act quickly and decisively,” said Mathew Antony, managing partner of Aditya Consulting, an advisory firm based here.

The troubles at IL&FS had been intensifyi­ng since July, when company founder Ravi Parthasara­thy stepped down, citing health reasons. Defaults from August within the group rattled India’s money markets, added to pressure on corporate bond yields and sparked a sell-off in the stock market.

The Reserve Bank of India has initiated a special audit, given the potential systemic risk to other nonbank lenders. There were also worries about upcoming group debt payments.

On Monday, government lawyers sought the National Company Law Tribunal’s approval to oust the board, calling the directors a “parasite on public fund” because of their “hefty” salary packages.

IL&FS “has been presenting a rosy picture and camouflagi­ng its financial statements by hiding severe mismatch between its cash flows and payment obligation­s, total lack of liquidity and glaring adverse financial ratios,” according to the government’s 44-page filing.

The government was left with no choice but had to act quickly and decisively.

Aditya Consulting managing partner

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