When you hear the sound of hooves, you normally think of horses not zebras. The architecture of IL & FS Group is very much like a zebra, part of the African equids or horse family, but each distinctive with their black and white striped coats. Over its 30 odd year history, ruled by a closed group of individuals, IL&FS, which is the holding company has created a maze of companies and while all are mentioned in the annual report, the construct is like a secret society — over a dozen companies, 24 direct subsidiaries, 141 indirect subsidiaries, six joint ventures and four associate companies. On a consolidated basis, the company closed the financial year 2017-18 with a revenue of Rs 18,798.78 crore and a loss of Rs 1,886.85 crore. The group’s consolidated debt increased by Rs 11,211 crore in financial year 2017-18 to Rs 91,091.30 crore as of March 2018, according to its filings with the Registrar of Companies. Nearly, 82 per cent or Rs 74,591 crore of it is contributed by subsidiaries.
Infrastructure Leasing & Financial Services’ (IL&FC) downgrade to junk has put Rs 10,000 crore worth of investments by insurers and pension funds at risk shaking the foundations of India's financial sector. Of the company’s standalone outstanding borrowing of more than Rs 16,500 crore as of May 2018, about 60 per cent is through non-convertible debentures, according to filings with the Registrar of Companies. Nearly all these instruments, documents show, are subscribed by insurance companies and provident and pension funds, including Life Insurance Corporation of India, General Insurance Corporation and the National Pension Scheme Trust. Practically every corner of India's financial spectrum is touched by this malfeasance. Three of the principal shareholders — LIC 25.34 per cent, Central Bank of India 7.67 per cent and State Bank of India 6.42 per cent — are government-owned institutions totalling almost 40 percent of the company's shareholding and still the government and its regulating agencies did not see how deep the rot had set in due to continuing financial jugglery.
Ravi Parthasarathy, an alumnus of IIM Ahmedabad and co-founder of finance firm 20th Century Finance, joined IL&FS in 1987 as president & CEO and was appointed as managing director in 1989.
For 30 years, he operated as the uncrowned king of this corporate, the design of which is an enigma. Known in the corporate world for his deal-making skills, he was later designated executive chairman of the company. The dominoes started falling when the 66-year-old credited for having built the group, resigned as its chairman after spending nearly half of his life with IL&FS. While health issues reportedly made him hang up his boots, a professional in infrastructure financing said it was “too long and too opaque” a tenure. Opacity became the norm at this monolith. From highways to clean energy, from maritime complexes to heritage restoration, the IL&FS group’s infrastructure verticals implemented a wide range of projects through public-private partnerships. It had a finger in every pie, it was said with losses to commensurate its diversified approach. IL&FS Transportation Networks (ITNL), IL&FS Energy Development Company (IEDCL), IL&FS Townships & Urban Assets (ITUAL), IL&FS Maritime Infrastructure Company (IMICL), Tamil Nadu Water Investment Company (TWIC) and then the financial services arms which convolute the entire spectrum of activities - allegedly complementing the Group’s infrastructure initiatives by offering investment banking, private equity and capital market services through subsidiaries which include: IL&FS Financial Services Limited (IFIN): It offers investment banking services and specialises in infrastructure financing transactions. It has international presence in Hong Kong, Singapore, Dubai and London IL&FS Investment Managers Limited (IIML): Its expertise cover the entire private equity life cycle right from raising funds, making and planning investments, to restructuring and exit IL&FS Capital Advisors: It offers a comprehensive suite of capital advisory services customised to assist clients succeed in ever-changing financing environments IL&FS Securities Services (ISSL): It holds leadership positions in F&O clearing and new products such as broking back office, broker’s broker and ESOP funding. It is these foreign subsidiaries which for most part operated as a secret society.
Remarkably, how Indian regulators failed to change the well entrenched incumbent management at IL&FS for years remains a modern conundrum. Finally, once talk of LIC trying to bail out the embattled IL&FS emerged in media, action has been taken and people have been removed, not just at Yes Bank, Axis Bank and ICICI but the IL&FS groupies were finally sent packing. Sebi too kept its eyes shut all these years despite losses mounting alarmingly. More importantly, the same management for years managed to blind side the regulators who in any case were deep in the arms of Morpheus.