The Curious Connection Between IL&FS and NHAI

On August 30, Infrastructure Leasing and Financial Services (IL&FS) group announced that it received 14 binding bids from multiple bidders for 10 road assets that account for the total debt of over Rs 17,700 crore, which is 19% of the total group debt.

Six of these 10 road assets under monetisation are in concession agreements with the government’s National Highways Authority of India (NHAI). The projects include Moradabad Bareily Expressway Limited (MBEL), Chenani Nashri Tunnelway Limited (CNTL), Hazaribagh Ranchi Expressway Limited (HREL), Jorabat Shillong Expressway Limited (JSEL), Baleshwar Kharagpur Expressway Limited (BKEL) and Pune Sholapur Road Development Company Limited (PSRDCL).

Agreements between IL&FS group and NHAI are crucial in understanding the collapse of IL&FS.

In fact, when the group began defaulting on its debt obligations, the then board’s initial plans were to monetise road assets in agreements with the NHAI, in order to pay back debts, perhaps, to cover up its dubious financial irregularities. For instance, The Financial Express in July last year, has reported that the beleaguered group initiated talks with the National Investment and Infrastructure Fund to sell its entire roads portfolio enterprise value of which was about Rs 30,000 crore.

Furthermore, the NHAI was the first authority which came forward for the rescue of the group. In September last year, the NHAI paid Rs 425 crore to IL&FS Transportation Networks (ITNL), as part of an urgent settlement and the authority was also ready to transfer another Rs 700 crore in the same month,which could have been a huge relief for the group at that time.

But, why the NHAI was curious and eager in the rescue of IL&FS during its initial phase of the collapse, despite serious allegations on the group operations have already been flagged by media reports and rating agencies. Interestingly, at that time, the IL&FS group had arbitration claims worth around Rs 70 billion with the NHAI, which were then under various stages of resolution.

However, as several of the worried lenders of IL&FS group had already approached courts, the monetisation plans went in turmoil resulting in the collapse of the group as the dubious operations of the group came to light. Consequently, the government appointed a new board under Uday Kotak’s chairmanship in October 2018, which is currently addressing the assets divestment of the group while several government agencies including Serious Fraud Investigation Office (SFIO) and Securities and Exchange Board of India (SEBI) are probing the financial irregularities committed by the IL&FS.

Meanwhile, the NHAI is now overhauling its model concession agreements after the Prime Ministers’ Office (PMO) raised concerns over the NHAI functioning while questioning the financial viability of road infrastructure and the ballooning debt pile-up.

The PMO’s letter on August 17, 2019 to Ministry of Road, Transport and Highways stated that the NHAI was “totally log jammed by an unplanned and excessive expansion of roads and it is mandated to pay much higher costs for land acquisition and construction”. It suggested that NHAI should aggressively monetise its existing assets and reconsider its concession agreement model. On top of this, the Comptroller and Auditor General of India (CAG) flagged the NHAI’s accounting practices in its audit report for the year 2017-18. Reportedly, the CAG has also sought the cost audit of the NHAI’s projects and alerted the finance ministry over the NHAI’s borrowings.

The NHAI borrowings were reported to be Rs 1,22,524.15 crore in 2017-18 compared to Rs 75,384.64 crore in 2016-17, according to its financial results. According to a Business Standard report, the NHAI debt is expected to touch Rs 2.5 trillion by the end of the current financial year.

The collapse of IL&FS Group, which had nearly Rs one lakh crore outstanding debt, has sent shockwaves across the country’s financial system while prompting a crisis in the country’s shadow banking sector.

It's been 11 months that the new board has taken over the reign of IL&FS and according their latest media release, “almost a quarter of IL&FS group debt is being addressed”. Earlier, NewsClick has reported that over 45,000 workforce of IL&FS were on the verge of losing their jobs and nearly 50% of the total debt recovery is also under question.