Wednesday, Members are requested to kindly mention the GST Registration No. of their respective organization. Please ignore if already mentioned. Explained: What is IL&FS crisis and how bad it is? Finance ministry urges Reserve Bank of India to take steps to ease liquidity in the system, tackle credit crunch L&T to invest about Rs 2,500 cr more to complete Hyderabad metro Explained: What is IL&FS crisis and how bad it is? Reuters, The debt-laden IL&FS has been hit by over-leverage and illiquidity Reuters India s financial markets have been reeling under high selling pressure in recent days, triggering concerns about risks in the country s shadow banking sector. The crisis has shaved off Rs 8.48 lakh crore ($116.33 billion) in investor wealth in the last ten days and at the eye of the storm is the Mumbai-based Infrastructure Leasing & Financial Services (IL&FS). The three-decade-old infrastructure lending giant, IL&FS, is a 'shadow bank' or a non-banking financial company that provides services similar to traditional commercial banks. The major shareholders of IL&FS include state-backed Life Insurance Corp of India holding, 25.3 per cent stake, Housing Development Finance Corporation with 9.02 per cent, Central Bank of India with 7.67 per cent and State Bank of India with 6.42 percent. Other key shareholders are the Japan s Orix Corp, holding 23 per cent, and Abu Dhabi Investment Authority with 12.56 per cent.
The subsidiaries of IL&FS include transportation network building subsidiary IL&FS Transportation Networks Ltd (ITNL), engineering and procurement company IL&FS Engineering and Construction Co. Ltd and financier IL&FS Financial Services Ltd. What is the crisis? To put it simple, IL&FS defaulted on a few payments and failed to service its commercial papers (CP) on due date which means the company has run out of cash or it is facing a liquidity crunch. The company piled up too much debt to be paid back in the short-term while revenues from its assets are skewed towards the longer term. IL&FS first shocked markets when it postponed a $350 million bonds issuance in March due to demand for a higher yield from investors. The recent slowdown in infrastructure projects and disputes over contracts locking about Rs 90 billion of payments due from the government have further worsened the condition. IL&FS Financial Services disclosed on September 6 that the commercial papers (CP), which were due on August 28, could not be paid on due date and were settled in full on August 31. IL&FS Financial Services has about $500 million in repayments which are due in the second half of this financial year while it has only about $27 million available. According to a Reuters report, by the middle of September, IL&FS and IL&FS Financial Services had a combined Rs 270 billion of debt rated as junk by CARE Ratings and a further six group companies had suffered downgrades with a negative outlook on another Rs 120 billion of borrowings. What are the effects? The company's default spells trouble for its investors, which include banks, insurance companies, and mutual funds. Investors and traders have been worried over the cascading effects of IL&FS s defaults. IL&FS sits atop a web of 169 subsidiaries, associates, and joint-venture companies, which makes the default even more worrisome. IL&FS has revealed a series of delays and defaults on its debt obligations and inter-corporate deposits. On Friday, IL&FS said it was unable to service its obligation towards a letter of credit to IDBI Bank Ltd. This has raised concerns about the possibility of a contagion or spillover, with further defaults hitting mutual funds with exposure to IL&FS and its group companies. However, Life Insurance Corporation (LIC), which has the largest shareholding in IL&FS, said that it would not allow the debt-ridden IL&FS to collapse and would explore options to revive it.
Meanwhile, IL&FS has moved the National Company Law Tribunal (NCLT) in Mumbai on Tuesday seeking relief in relation to filing of a scheme of arrangement under Section 230 of the Companies Act, as it looks to protect itself from any potential bankruptcy proceedings. Finance ministry urges Reserve Bank of India to take steps to ease liquidity in the system, tackle credit crunch Reuters, The finance ministry wants the Reserve Bank of India (RBI) to consider more steps to improve liquidity in the system, including reducing the amount of funds banks must set aside with it, a senior ministry official said on Tuesday, amid a bubbling credit crunch in the Indian shadow banking industry. The RBI could also explore buying more bonds from the open market and open a special window for mutual funds to inject liquidity, the official told reporters. Prime Minister Narendra Modi s government faces a new challenge that could derail growth at a time when surging fuel costs and a slumping rupee are buffeting the world s fastest-growing major economy. The RBI did not immediately respond to a request for comment on the proposed ideas. Late on Monday the RBI said it would buy 100 billion rupees ($1.38 billion) of government bonds via an open market operation, in a move to ease liquidity. The finance ministry, RBI and India s markets regulator have this week all said they all are closely monitoring the liquidity crunch that has hit non-banking financial companies (NBFC), and they stand ready to intervene. Investors have been unnerved by credit concerns that have engulfed one of the biggest NBFC names in India - Infrastructure Leasing & Financial Services (IL&FS) - which has this month defaulted on a series of its coupon payments and seen its debt downgraded by big rating agencies to junk from AAA, within a span of less than two months. That, in turn, has sparked concerns around the viability of other NBFCs, leading to a sharp selloff in the sector, higher borrowing costs for NBFCs, and growing fears of contagion. Finance minister Arun Jaitley at a press event on Tuesday said the government was watching the IL&FS situation closely. As far as the government is concerned, we are closely in touch with the situation and monitoring the situation, he said, adding banks were confident of maintaining liquidity for various sectors as required. Earlier in the day, India s largest state-run insurer, Life Insurance Corp (LIC), which owns some 25 percent of IL&FS, also said it would not allow IL&FS to collapse.
Speaking with media on Tuesday, LIC Chairman VK Sharma said all options, including increasing LIC s stake in IL&FS, are open. Markets mixed The reassurances from Sharma lifted shares in two of IL&FS s biggest listed-units IL&FS Transportation Networks and IL&FS Engineering & Construction Co. 6.26 percent and 10 percent, respectively. This coupled with government assurances helped Indian equity markets snap a five-session losing streak and close nearly a percent higher on Tuesday, driven by gains in banks and other financial companies. The benchmark 10-year bond yield rose one basis point to 8.13 percent on the day. The partially convertible rupee, which is Asia s worst performing currency so far this year, also weakened further on the day to close at 72.7050, after slumping as low as 72.9650 per dollar early in trading on Tuesday. Despite the assurances, analysts and investors remain wary of NBFCs and their prospects in the near-term. We are cautious on NBFCs that have grown asset-liability mismatches, warned Credit Suisse analyst Ashish Gupta in a note to clients on Monday, adding weaker NBFCs could see net interest margins squeezed given the rise in funding cost on the back of tightening liquidity and widening credit spreads. Credit Suisse noted that yields on commercial paper issued by NBFCs have spiked 175 basis points in the aftermath of the IL&FS defaults. The brokerage firm also estimates mutual funds currently own an estimated 60 percent of this commercial paper and may seek to trim their exposure in the current market environment. L&T to invest about Rs 2,500 cr more to complete Hyderabad metro The Hindu Business Line, DPR for Phase II of metro to be ready soon Construction and infrastructure major L&T today hinted at investing about Rs 2500 crore more to complete the ongoing Hyderabad metro rail project. As a concessionaire, L&T has thus far invested about Rs 13,000 crore of the Rs 14,132 crore elevated metro rail project taken up under the public, private partnership. And the Telangana Government has invested more than Rs 2300 crore for land acquisition, right of way and related infrastructure to facilitate the project completion.
Of the 72 km elevated metro rail, thus far a stretch of 45 km spanning two corridors has been completed, and the stretch connecting the Hitec City, the IT hub of Hyderabad, is at advanced stage of completion. According to NVS Reddy, Managing Director of Hyderabad metro Rail Limited and KVB Reddy, Managing Director and CEO of L&T Metro Rail Hyderabad Limited, efforts are on to complete the Hitec City stretch by December and the third corridor between Secunderabad and MGBS, by second half of 2019. With this, the project will see completion of 66 km. However, the Old City section connecting Falaknuma will take some more time as there have been issues relating to right of way, they explained. The L&T has set apart equity of Rs 3,000 crore and raised a debt of Rs 12,000 crore for the metro. The project will need to tackle interest of about Rs 1200 crore per annum, when it is fully ready, NVS Reddy stated. Mentioning about metro progress and its role in transforming Hyderabad into a modern city, they said not just the metro, but the entire project is aimed at bringing about urban rejuvenation. Asked about financial implications due to delay, they said This could be assessed only after the entire project gets completed. Detailed project report NVS Reddy said that the detailed project report for the phase II of Hyderabad metro, which seeks to connect the International airport at Shamshabad and other lines, is expected to be ready soon. The Telangana Government is planning to link the airport from two sections, and the second phase is aimed at taking this up. Shortlisted NVS Reddy said that Hyderabad metro has been shortlisted amongst best 15 metro rails in the world. Of the 15 metros chosen for the survey by a UK based firm, Hyderabad metro ranks high and expected to notch up a high ranking. Referring to financial viability of metro projects, NVS Reddy said of the 250 metros in the world, only four metros Singapore, Tokyo, Hongkong and Taipei have been profitable. We will have to strive hard and ensure the success of the metro. With the commissioning of the 16 km stretch on Monday, the metro is looking at a ridership of over 2 lakh commuters per day. French company, Kiolis today said its satisfaction survey of 15 metros had showed outstanding results for Hyderabad metro.