Rs 45 bn rights not enough, IL&FS needs Rs 300 bn in fresh equity: Report

Distressed-debt specialist firm, REDD Intelligence, has warned that beleaguered infrastructure financier, IL&FS, will require equity infusion of up to Rs 300 billion to get back on the rails. It will also have to take an impairment of at least Rs 150 billion before recovering a single rupee from its subsidiaries, the firm said.

“The required equity infusion could be in the range of Rs 225-300 billion, much higher than the proposed Rs 45 billion rights issue," it said. “We estimate the equity required to right-size the balance sheet is Rs 295 billion, which is equal to the standalone borrowings at IL&FS and ITNL. Excessive holding company leverage was used to finance parent contributions in operating subsidiaries,” it said in a report dated September 27.

REDD Intelligence estimated that IL&FS Financial Services (IFIN) and other financial subsidiaries of the group have Rs 250 billion in financial assets and Rs 30 billion in equity, which it says may be sufficient, barring requirements of capital on the account of group loans. IL&FS' consolidated fixed assets, including concessions, are Rs 610 billion, which, based on leverage of two times (debt to equity), requires an equity contribution of about Rs 203 billion. IL&FS also has Rs 87 billion in equity investments, loans and advances, and receivables from associates, which should form part of equity and should not be leveraged. Summing up, all three would bring the total equity requirement to Rs 320 billion, it said.