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By Anurag Joshi, George Smith Alexander and Saloni ShuklaInfrastructure Leasing Financial Services, 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 becomes due in the next few months.
A unit of ILFS, which has been categorized 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, ILFS Transportation Networks said in a filing on Saturday.
ILFS Transportation manages 28 road and five other non-road projects, according to its annual report.
Investors are concerned that defaults by ILFS, 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 4.9 billion rupees ($68 million) of its obligations this year and has additional dues of about 2.2 billion rupees to be repaid by end of October, according to data compiled by Bloomberg.
“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 ILFS 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.
”
ILFS, which reported revenue of $2.6 billion in the year ended March 31, on Friday couldn’t make payments of 376.4 million rupees on three non-convertible notes series with total outstanding of 4.5 billion rupees, according to data compiled by Bloomberg.
Investor concerns about contagion spreading from the beleaguered company played out last week.
India’s benchmark stock index SP 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 dropped 13 per cent.
The reason: DSP Mutual Fund sold Dewan Housing’s debt at a discount earlier in the week.
ILFS and its units are also losing its top executives.
Five directors of its units ILFS Financial Services including its Managing Director Ramesh Bawa resigned, according to people familiar with the matter.
Bawa’s resignation was announced by the company in a filing on Friday.
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.
ILFS first defaulted on commercial paper, then on short-term borrowings known as inter-corporate deposits.
It has also failed to pay 4.5 billion rupees in ICDs to government-backed lender Small Industries Development Bank of India, people familiar with the matter said earlier this month.
ILFS’s outstanding debentures and commercial paper accounted for 1 per cent and 2 per cent, respectively of India’s domestic corporate debt market as of March 31, according to Moody’s Investor Services.
Its bank loans made up about 0.5 per cent to 0.7 per cent of banking system loans, Moody’s said.
