IL&FS board calls for full audit of accounts, austerity measures

IL&FS currently has a debt of around Rs 91,000 crore. Photo: Mint

IL&FS currently has a debt of around Rs 91,000 crore. Photo: Mint

Mumbai: At its second meeting on Friday, the newly appointed board of directors of beleaguered Infrastructure Leasing and Financial Services (IL&FS) called for a full audit of the company’s accounts as of 30th September. The company will also implement cost-cutting measures, the board said in a statement.

As the series of defaults by the parent and its subsidiaries continues unabated with the group missing another payment last Monday, the media statement did not give any indication of how the company will manage its liquidity crisis. However, the board of the parent company has approved the formation of a Core Operating Committee under vice-chairman and managing director Vineet Nayyar.

The board had also initiated several austerity measures related to personnel and operating expenses, the statement said, although it did not elaborate on the nature of the measures.

“As the first step of the austerity measures, IL&FS is likely to reduce the remuneration of the top management and stop certain dividend payments to save on costs,” according to a person familiar with the development, following Friday’s board meeting. “Even though the remuneration of most of the top management is somewhat in line with the average ratio of salary expenses to the company’s topline in the infrastructure sector, considering the current crisis, employee benefits have to be controlled until the situation improves. Dividend payouts have been an important element for rewarding shareholders of the group and its subsidiaries over the years. These plans have to be revised to control costs.”

This is a departure from its recent history, when despite seeing the liquidity crisis building, and falling profits and looming losses, the IL&FS board increased the remuneration of its past chairman Ravi Parthasarathy, vice-chairman and managing director Hari Sankaran and the joint CEO-cum-managing director Arun Saha every year since 2014-15.

The group hiked Parthasarathy’s remuneration by 144% in 2017-18, compared with in 2016-17 (although it included retirement benefits). His remuneration rose from Rs 7.28 crore in 2014-15 and Rs10.8 crore in 2016-17 to Rs 20.46 crore in 2017-18. Sankaran’s total remuneration rose from Rs 4.81 crore in 2014-15 to Rs7.76 crore in 2017-18.

Compared with the top management, the other employees of IL&FS received a salary hike of just 4.4% in 2017-18.

Also read: Opinion | IL&FS: The Indian hydra that must be slayed

On Friday, the board also replaced the nominee directors on eight subsidiaries of IL&FS, based on the recommendations of the Nominations and Remuneration Committee. The new nominee directors on board of IL&FS Financial Services include Vineet Nayyar, Nand Kishore and Malini Shankar; for IL&FS Transportation Networks, it is Nayyar and CS Rajan. For IL&FS Energy Development, the directors include GC Chaturvedi and Nayyar, while it is Malini Shankar for Tamil Nadu Water Investment Company Ltd.

Both Bajpai and Uday Kotak, the chairman of the IL&FS board, did not take positions as nominee directors on the eight subsidiaries that were named in the press release.

After its first meeting on 4th October, Kotak had sought to reassure stakeholders that the board was committed to rebuilding trust, bringing clarity on the road ahead and taking decisions in an open, fair and objective manner. The government-appointed board had to submit its roadmap on handling the IL&FS crisis to the National Company Law Tribunal on 31st October.

While trouble had been brewing at the infrastructure lender for a while, it spilled over into the public domain when the company started missing payments due on short-term debt and commercial paper in August. Since then, it emerged that the company and its web of subsidiaries had amassed a debt of Rs 91,000 crore, and would struggle to repay lenders. The group has been incurring losses continuously for three years since 2015-16. On 2nd October, the government took over control of the company and appointed its own representatives to the board to handle the crisis.

First Published: Fri, Oct 12 2018. 07 06 PM IST

Source: Livemint