INSUBCONTINENT EXCLUSIVE:
By Andy MukherjeeIt was as a newspaper-office intern in New Delhi in 1992 that I witnessed the birth of India’s homegrown belt-and-road
The program was midwifed by an up-and-coming lender that few had then heard of: Infrastructure Leasing Financial Services Ltd.
It wasn’t
called belt-and-road, a term that would gain currency much later as a catchphrase for China’s opaquely financed global infrastructure
There’s a lot of scrutiny now of those energy and transportation projects, and a growing discomfort that Beijing may be ensnaring
developing countries in a debt trap
So it’s remarkable that India – itself a vocal critic of belt-and-road – allowed a local financier to do something similar on home
turf, with little accountability or supervision.
A perennial paucity of budgetary resources has forced taxpayers to outsource infrastructure
— not to the Chinese, but to local public-private partnerships led by ILFS
However, in many instances, only the returns became private
Risks remained with the public.
Those risks have now come back to bite
ILFS and its associates have $12.5 billion in debt, of which $500 million is due over the next six months
The group has only $27 million of liquidity at hand, sparking a debt-repayment crisis that threatens to engulf Indian banks and mutual funds
to insurance and pension funds
Chairman Ravi Parthasarathy, paid $3.65 million last fiscal year, left abruptly in July after being with the company since its
inception.
When I first encountered it, the five-year-old ILFS was barely getting started with what would become its unique model: a
financier that also conceived, executed and owned large projects
It offered to do all those things in 1992, when India’s capital city of New Delhi and its eastern suburb of Noida agreed to build a
connecting expressway across the river Yamuna
The ILFS-controlled Noida Toll Bridge Co
opened a gleaming eight-lane motorway nine years later
Driving on it was divine, but it soon became apparent shareholders were getting a risk-free ride at commuters’ expense, with the project
guaranteeing 20 per cent returns to equity investors including ILFS
When the Delhi and Noida governments gave the land, they had expected the expressway to be returned to them in 30 years
In 2008, though, it looked like the asset was going to be in private hands for at least 70 years
In 2016, a court called out the daylight robbery and ordered the toll plazas to be dismantled
Stock of India’s first publicly traded toll road shot up above 70 rupees in 2007; it changes hands for less than 9 rupees now
It’s unclear whether ILFS learned anything from that fiasco
Gift City, Indian Prime Minister Narendra Modi’s pet project to set up an international finance center in his home state of Gujarat, saw
the state government lease land at throwaway prices to an ILFS-controlled company
A former head of Gift City board’s audit committee had to leave after he made noises about the one-sided contract, and complained about
the engineering and architectural services vendor appointed by ILFS not fulfilling its obligations or returning money paid.
I could go on
Foreign investors, as well as locals such as Life Insurance Corp
of India, and Mahindra Mahindra Ltd., joined ILFS as equity partners in a socially worthwhile and economically necessary water treatment
plant in Tirupur, a textile town in Tamil Nadu
But now the investors say they’ve been diluted against their knowledge because ILFS — also a lender — wants to maximize value for
A challenge by one investor alleging oppression by ILFS and the Tamil Nadu government has reached India’s Supreme Court.
The unlisted ILFS
parent is beyond stock market scrutiny
And while it doesn't fall within the regulatory regime for deposit-taking institutions, it’s categorized as systemically important
Yet there’s never been any real oversight of it; an infrastructure-financier that’s also an operator with 169 subsidiaries, associates
and joint ventures is too complex for any watchdog or credit-rating firm.
Its majority owners are state-owned, and that’s given ILFS the
aura of a quasi-sovereign
is ILFS’s biggest shareholder, yet its officials privately rue the fact that they were diluted in Tirupur to the point they left the
operating company’s board
The same state-run insurer will probably have to rescue it now
On Saturday, ILFS changed its chairman once again.
Were ILFS a Chinese company in a developing country, there would be an uproar by now
about exploitative contracts, and the trail of waste left in their wake
But this is an Indian company in India, playing on the nation’s desperation for decent infrastructure
As a young intern in Delhi 25 years ago, when I yearned for a quick passage across the river, I had no idea the bridge to a better life
would one day extract such a heavy toll.
