Japan’s Orix Corporation to acquire majority stake in the sinking IL & FS

By:Manmeet Kaur Tura 2018-09-24

Orix Corporation wants to introduce fresh capital into the company from overseas so that IL & FS will be able to meet its financial requirements.

Orix Corporation of Japan is keen to acquire a majority stake in the infrastructure development and finance company. It owns 23.54 per cent in crisis-hit Infrastructure Leasing & Financial Services (IL&FS).

Orix Corporation wants to introduce fresh capital into the company from overseas so that IL & FS will be able to meet its financial requirements. As per a source close to the development, Orix is a global financial services player and has revenues of $23.5 billion. It also has two representatives on the IL&FS board and is the largest stakeholder in IL&FS after LIC (Life Insurance Corporation).

The gross debt of IL&FS Ltd is Rs 910 billion.

IL&FS has been defaulting defaulted on a repayment of Rs 1 billion to Small Industries Development Bank of India (SIDBI, not rated). It has failed to pay the debt since September 10. This came across after a series of failures to pay debts started on August 28, when IL&FS Financial Services, delayed meeting some commercial paper obligations.

IL&FS is playing roles of a holding company, a project developer and a financier.

As of March 31, debts incurred by IL&FS in the form of bank loans accounted for 0.5-0.7 per cent of the overall loans of banks.

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Rating agency Moody’s commented that “We do not expect the exposure of any rated bank to exceed 2 per cent of its loan book,” They further added that the main stakeholders of the group have a strong financial position. However, so far, there has been no public announcement of commitment of specific support from the main stakeholders.

Moody's has already stated a warning to IL & FS saying it was credit-negative for both the banks and the debt market in India. The defaults would influence mutual funds, pension funds and insurance companies.

Life Insurance Corporation, Orix Corporation of Japan, State Bank of India (SBI) and Central Bank of India are amongst the key shareholders of IL&FS.

SBI and Central Bank of India have a twin role as lender and shareholder. SBI has a representation on the board of IL&FS.

Under such situations, Orix Corporation of Japan is trying to save the sinking boat and gaining a strong hold on the company by wanting to acquire a majority stake in the company.

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