New IL&FS Board to scan firm in 15 days

The newly-appointed Board of IL&FS is likely to meet this week, as early as Wednesday, to take stock of the financial situation of the company and its subsidiaries.

The Board is likely to come up with an assessment report within a fortnight.

"We have requested the Board to make a firsthand assessment and tell us about the big picture," MCA secretary Injeti Srinivas told reporters. Banker Uday Kotak who is heading the Boards met finance minister Arun Jaitley and the secretary in Delhi on Monday.

The Board will make a complete assessment of the firm's financial situation, its liquidity position and draw priorities, sources said.

"The immediate issue is of short-term borrowings. Long-term debts are likely to be restructured. There will be an asset by asset valuation. The Board will come up with a resolution plan," a source said.

It will also look at the possibility of finding a buyer for its subsidiaries if they are not sustainable by restructuring, sources said.

The Board, after assessing the situation, will decide what immediate lifeline is required and what sort of government help is required, sources said. The government has said it will infuse capital as and when required.

"The present management was unable to resolve the crisis. The only option was to substitute it with high credibility management which can find early resolution. Secondly, there is a huge public interest involved and the ramifications and cascading effect are far than estimated," the MCA secretary said. "If this did not have a potential of a contagion effect, the government would not have taken this action," he said.

The government stepped in to take over the Board in order to restore the investors' confidence and to protect public interest and sentiment, he said.

The MCA action was based on scrutiny of records and financial statement by its regional director. The report cited mismanagement and misrepresentation by the management.

"Overall liquidity crunch is too severe. Leveraging is more than ten times. Servicing debts will be a big challenge before the Board. There is a huge gap between assets and liabilities of the company. Only then, there can be a resolution plan," MCA sources said.

There is a big question mark as both current and non-current assets are locked up. About half of its assets are blocked in receivables. About 50% of the operating revenues are locked up in receivables.

The exposure of public sector banks in the company is close to Rs 60,000 crore. Then there are commercial papers and short-term instruments to the tune of Rs 30,000 crore.

While the SFIO will carry out an in-depth investigation of the company and its 169 subsidiaries, the newly constituted National Financial Reporting Authority (NFRA) is likely to look into the role of auditors.