What is the controversy surrounding IL&FS? All you need to know

New Delhi, Oct 2: Infrastructure Leasing and Financial Services (IL&FS), an unlisted infrastructure lending giant with over 150 subsidiaries, has been making headlines of late for all the wrong reasons.

The group has a debt burden of over Rs. 90,000 crore. Panic among investors set in after the company defaulted on short-term debt repayment a month ago, follo
wed by more defaults that eventually led to a ratings downgrade. The IL&FS crisis is likely to affect people who have invested in mutual funds.

IL&FS needs immediate capital infusion of Rs 3,000 crore and has also proposed Rs 4,500 crore as rights issue. The Reserve Bank of India (RBI) also met the shareholders of IL&FS on September 28 to discuss the revival and capital infusion plans for the company.

At the annual general meeting (AGM) of the company on September 29, shareholders - the State Bank of India (SBI), Life Insurance Company (LIC) and Orix Corporation - agreed to subscribe to the proposed Rs 4,500-crore rights issue.

How it started?

It all started in June when IL&FS defaulted on inter-corporate deposits and commercial papers (borrowings) worth about Rs 450 crore. Over the next two to three months, at least two rating agencies downgraded its long-term ratings.

As a result, the infrastructure giant, which is credited for building the longest tunnel in the country (the Chenani-Nashri tunnel), no longer carries an investment grade rating. This makes it difficult for the company to raise money in future.

LIC, with a 25.34 percent stake in IL&FS, is the largest shareholder in the company. Orix Corporate, Japan with a 23.54 percent stake is the second largest shareholder. Other large shareholders include Abu Dhabi Investment (12.56 percent), Housing Development Finance Corporation - HDFC (9.02 percent), Central Bank of India (7.67 percent) and State Bank of India (6.42 percent).

What has been done?

The government has taken control of Infrastructure Leasing & Finance (IL&FS) after getting an approval from the Insolvency & Bankruptcy Court in Mumbai.

The NCLT has appointed a six-member panel to take over the management at IL&FS with immediate effect. The panel will be headed by managing director of Kotak Mahindra Bank - Uday Kotak.

Finance Minister Arun Jaitley has said the government will take all measures to ensure that adequate liquidity is provided to non-banking financial companies or NBFCs, mutual fund houses, and small and medium enterprises or SMEs, after the stock and bond markets were rattled by the IL&FS crisis.