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IL&FS and financial Issues

  • Category
    Economy
  • Published
    4th Apr, 2019
  • The National Company Law Appellate Tribunal (NCLAT) asked the government and the IL&FS to provide financial details, including amounts payable to creditors, regarding 13 group entities that have been classified under the 'amber' category.
  • During the proceedings, the bench said that whatsoever step is taken by the newly-appointed board and the government for resolution of IL&FS and its group companies would have to be approved by the appellate tribunal.

Context

  • The National Company Law Appellate Tribunal (NCLAT) asked the government and the IL&FS to provide financial details, including amounts payable to creditors, regarding 13 group entities that have been classified under the 'amber' category.
  • During the proceedings, the bench said that whatsoever step is taken by the newly-appointed board and the government for resolution of IL&FS and its group companies would have to be approved by the appellate tribunal.

About

Infrastructure Leasing & Financial Services (IL & FS):

  • It is an Indian infrastructure development and finance company.
  • It was formed in 1987 as an "RBI registered Core Investment Company" by three financial institutions, namely the Central Bank of India, Housing Development Finance Corporation (HDFC) and Unit Trust of India (UTI), to provide finance and loans for major infrastructure projects.
  • It operates through 256 group companies including subsidiaries, joint venture companies and associate entities.
  • Its projects include some of the largest infrastructure projects in India including India's longest tunnel, Chenani-Nashri Tunnel (in the state of Jammu and Kashmir), which was opened for traffic in April 2017.
  • Gradually, as the organization needed better financing, it additionally opened itself to two large international players, namely Mitsubishi (through Orix corporation Japan) and the Abu Dhabi Investment authority. Subsequently, Life Insurance Corporation India, Orix and ADIA became its largest shareholders, a pattern that continues to this day.

Cause of concern:

  • IL & FS has run short of cash. In addition a recent drying up of new infrastructure projects, IL&FS has felt the pain from interest rates that have soared to multi-year highs for short-term borrowings.
  • Some of IL&FS’s own construction projects, including roads and ports, have faced cost overruns amid delays in land acquisition and approvals.
  • IL&FS Financial Services has about $500 million of repayment obligations over the next six months. Its debts total about $12.6 billion.

Green, Amber and Red categories:

  • Under its resolution plan, the government has categorised IL&FS group entities into green, amber and red categories based on their respective financial positions.
  • Entities classified as 'green' would continue to meet their payment obligations, while 'amber' category firms can meet only operational payment obligations to senior secured financial creditors. Those falling in the 'red' category are the entities which cannot meet their payment obligations towards even senior secured financial creditors.

     National Company Law Appellate Tribunal (NCLAT)

     It was constituted under Section 410 of the Companies Act, 2013 for hearing appeals against the orders of National Company Law Tribunal(s) (NCLT), the orders passed by NCLT(s) under Section 61 of the Insolvency and Bankruptcy Code, 2016 (IBC) and any direction issued or decision made or order passed by the Competition Commission of India (CCI).

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