MUMBAI: India’s structured finance market, the cash conduit to lower-rated borrowers, could head into a lockdown if special purpose vehicles (SPV) of IL&FS are allowed to skip repayments to investors until bankruptcy courts resolve the debt at the infrastructure financier and its subsidiaries.

India Ratings and Crisil have both hinted at sharp downgrades to ‘D’, or default grade, for the outstanding loans and debt at the SPVs if repayments are stopped at those operating units. India Ratings and Crisil have rated the bonds issued by five such companies – Jharkhand Road Projects Implementation Company, Hazaribagh Ranchi Expressway Ltd, Jorbat Shillong Expressway, North Karnataka Expressway and West Gujarat Expressway.

Total outstanding bonds would be worth Rs 3,300 crore for the five SPVs, while bank loans could be in the range Rs 15,000-20,000 crore for all such SPVs, showed market estimates by two market sources that are involved in the matter. There are about 330 such SPVs in the IL&FS group.

Ajim Premji Trust, Pioneer Independent Trust, Food Corporation of India, and Postal Life Insurance Fund are some of the investors in those SPVs, market sources said. Some domestic mutual funds also hold those debt papers.

“If the structured mechanism comes under pressure for problems at the holding company level, then the faith of the market in structures will disappear,” said Nilesh Shah, Managing director, Kotak Mutual Fund. “The capital market will be open for the highest rated borrowers only.”

IL&FS declined to comment on the matter, while individual investors could not be contacted immediately.

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“We had put all five special purpose vehicles under negative watch last year pending the resolution of ITNL’s role in managing the maintenance of the roads,” said Ananda Bhoumik, MD, India Ratings. “Based on the latest communique, the move looks regressive for access to financing for infrastructure SPVs.”

IL&FS Transportation Networks (ITNL) is a wholly-owned subsidiary of the IL&FS.

If the SVPs are able to stop the payments, the ratings on the bonds would have to be downgraded to ‘IND D’, he said.

IL&FS has cited a court order by the National Company Law Appellate Tribunal (NCLAT) while claiming that its SPVs are entitled to a moratorium on repayments.

The NCLAT extended a moratorium after giving initial relief until the final hearing. The Ministry of Corporate Affairs filed an application with the NCLAT after the National Company Law Tribunal rejected the application for a moratorium in October.

IL&FS has written letter to the IDBI Trustee, which is entrusted with the task of protecting the interest of the bond holders.

“The trustee is mulling legal option. It is likely to go to NCLT, which will decide whether a moratorium will apply to all such SPVs,” said a senior executive, who did not wish to be named.

All operative companies will be hit due the latest SPV move, said a senior executive.

Based on available legal opinions, CRISIL understands that the NCLAT order does not pose restrictions on regular debt servicing, the rating agency said in a report.

“Debt servicing on these bonds is not an issue. If you want your money back, it has a moratorium,” said a senior manager at a fund house.

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However, NCLAT made a reference to all such SPVs in its earlier order.



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