THE HINDU Editorial Vocabulary - October 2, 2018 - Rescuing IL&FS
Rescuing
IL&FS
The Centre’s move to
supersede the Board of Directors of the troubled
Infrastructure Leasing & Financial Services (IL&FS) has come not a day
too soon. By explicitly stating its intent to “ensure that needed liquidity is
arranged for IL&FS from the financial system”, the Centre has sent out an
unambiguous message to the markets that it will not allow the company to fail.
In fact, a lot of the turbulence witnessed in the debt and stock markets last
week could have been avoided had the government acted earlier. Any rescue plan
for the beleaguered company obviously had to begin with replacing the existing
management that was responsible for mismanaging its affairs.
The annual general
meeting of shareholders of IL&FS on September 29 had approved a rights
issue of Rs.4,500 crore and a debenture issue of Rs.15,000 crore. But which
lender or shareholder would commit to extending support to the company when it
was defaulting regularly and the same set of people responsible for the
mismanagement continued to be in charge? Against this backdrop, a change in
management and the appointment of experienced people — such as Uday Kotak, who
has rich experience in the finance sector; G.C. Chaturvedi, former bureaucrat
and non-executive chairman of ICICI Bank; and G.N. Bajpai, former chairman of
the Securities and Exchange Board of India and the Life Insurance Corporation —
should lend confidence to lenders and investors.
The company is listed as “systemically important”
by the Reserve Bank of India, and with over Rs.1,15,000 crore of assets and
Rs.91,000 crore of debt, it is too big to fail. The interlinkages between
IL&FS and other financial sector entities such as banks, mutual funds and
infrastructure players are too strong and the company would have taken them all
down with it if it were allowed to fail. At this point, the problem appears to
be one of liquidity and not solvency — it is a classic case of over-leveraging,
and an asset-liability mismatch caused by funding projects of 20-25 years
payback period with relatively short-term funds of 8-10 years. There is a felt
need here for long-term finance sources for infrastructure projects. The LIC
and some insurance companies are the only domestic sources and they too do not
lend beyond 10 to 12 years. The Centre and the RBI should look at ways to
deepen the debt markets where infrastructure players can borrow long-term. It
also needs to be analysed how a company listed as “systemically important”
managed to fly under the radar with misgovernance. The debt pile-up due to
over-leveraging did not happen overnight. How did the RBI, as the regulator,
miss the goings-on? Are the shareholders, which are well-known institutions,
guilty of misplaced faith in the management, or were they negligent? Finding
answers to these questions is as important as rescuing IL&FS.
Vocabulary
Supersede: take
the place of a person or thing previously in authority or use
Example: The
older models have now been superseded
Synonyms: replace, take
the place of, take over from, succeed, supplant
Explicit: stated
clearly and in detail, leaving no room for confusion or doubt.
Example: The
speaker's intentions were not made explicit
Synonyms: clear, plain, straightforward, crystal
clear, easily understandable
Unambiguous: not
open to more than one interpretation.
Example: Instructions
should be unambiguous
Turbulence: violent
or unsteady movement of air or water, or of some other fluid.
Example: The
plane shuddered as it entered some turbulence
Beleaguer: lay
siege to.
Example: He
is leading a relief force to the aid of the beleaguered city
Synonyms: besieged, under
siege, blockaded, surrounded, encircled
Solvency: the
possession of assets in excess of liabilities; ability to pay one's debts.
Example: The
company was confident that solvency could be maintained
Leveraging: use
borrowed capital for an investment, expecting the profits made to be greater
than the interest payable.
Example: A
leveraged takeover bid
Guilty: culpable
of or responsible for a specified wrongdoing.
Example: The
police will soon discover who the guilty party is
Synonyms: culpable, to
blame, at fault, blameworthy, responsible
Appears: come
into sight; become visible or noticeable, typically without visible agent or
apparent cause
Example: Smoke
appeared on the horizon
Synonyms: become
visible, come into view, come into sight, materialize
Liquidity: the
availability of liquid assets to a market or company.
Example: We
have notions of linkages between liquidity and the bond markets, and between
liquidity and different assets,’ says Diamond
Confidence: the
feeling or belief that one can rely on someone or something; firm trust.
Example: We
had every confidence in the staff
Synonyms: trust, belief, faith, credence, conviction
