FAI LURE OF CORP ORATE GOVE RNANCE

IL&FS CRISIS
GROUP 7
Company Background

• Infrastructure Leasing & Financial Services Limited (IL&FS) is an Indian

infrastructure development and finance company.

• IL&FS has 256 group companies as of 2018, including subsidiaries (23

direct subsidiaries, 141 indirect subsidiaries), joint venture companies and
associate entities. 

• Diversified investment in projects ranging from transportation to finance,

tourism, education as well as environment.
Company Background
• Funding : Long term debt ( loan via Govt. ) or short term debt by issuing debt instruments such
as bonds, non-convertible debentures, commercial papers etc.
HDFC
9%
LIC
IL&FS EW Trust 25%
12%
• Stake Holders

SBI
12%

ORIX Corporation
ADI 23%
A
12% Central Bank of India
7%
The Crisis
Asset Liability Mismatch Simplified
Loans Issued
IL&FS issues loans for
big infrastructure projects
after collecting funds via
long term loans and debt
instruments
Projects Delayed Pressure from Chain Reaction Current Debt
Debt Instruments of Defaulting Rs 91000 crore
Debt/Equity Ratio 18
Multiple Infrastructure
projects delayed or Short term lender become First the short term loans
overshot estimated costs impatient for returns are defaulted, followed
vs return due to time forcing them to take short by long term loans
factor term loans from bank
Complex Corporate How did they manage to hide so long?
Governance Structure The answer, perhaps, lies in the complex structure of the
company with its maze of holding and co-holding
companies, subsidiaries, joint ventures etc.

The financing of the SPVs [special purpose vehicles] was done in such a
way that all the risks were backed either by the co-holding
or the holding companies of IL&FS,”
Became Infrastructure centered company from an investment one.

- FORT UNE INDIA | 2019

 Definition
Ownership • Ownership concentration is defined by the number of large-block

Concentration
shareholders and the total percentage of the firm’s shares they own.

• Institutional Owners prevailing.

• In ILFS case we see majority ownership with Government entities such
as LIC, SBI etc.
• But failure in institutional activism, has resulted in powerful groups of
people at its helm, who enjoyed a lot of privileges that went unchecked.
 UNETHICAL PRACTICES IN
CORPORATE GOVERNANCE

Unfair Executive Compensations Unfair Credit Ratings

Unfair credit rating values issues due to unethical practicrs and
obligations at both ends of the deal.
Raise in CEO and Board of Directors compensation despite poor
quarterly performance and losses of organization.

Misusing Govt Funds Unsustainable Business Model

Laundering government funds by creating the facade of a An interim report of the Serious Fraud Investigation Office
goverment project (SFIO), presented to the NCLT this December, decoded the
modus operandi.
 MARKET FOR CORPORATE CONTROL

• The market for corporate control is an external governance mechanism.

• Government dissolved 15-member debt ridden board of IL&FS

• Replaced with new board led by Uday Kotak to restore confidence and stabilize
situation.

• New members to de-cluttering the operations of the infrastructure conglomerate

• Establish central financial control function at holding company level

 Thank You
Group 7
Priyanshi Porwal 19P210
Rahul Jeswani 19P211
Sirsha Mukherjee 19P226
Tanayjit Chakraborty 19P230
Tarun Damani 19P232
Virendra Agarwal 19P234