The Indian government is considering putting Infrastructure Leasing and Financial Service Ltd (IL&FS) up for sale or divesting some of its assets as it seeks to end the company's debt crisis, a person with direct knowledge of the matter said on Tuesday.
The government, in a rare move, took control of IL&FS this month after the company defaulted on some of its debt, triggering fears of contagion across India's financial system.
The government-appointed board plans to propose a sale of the whole firm, some of its units or individual road projects, according to the source, who did not want to be named before the proposals are submitted to the National Company Law Tribunal on Wednesday.
It could take six to nine months to fully address the problems at IL&FS, a major infrastructure financing and development company, the source said.
IL&FS's foreign shareholders include Japan's Orix Corp and the Abu Dhabi Investment Authority.
"We will be able to gauge buyers' interest only when we hit the market," the source said, adding the company had road projects totalling about 12,000 km that could be sold if "someone wants to finish whatever work is left and collect tolls".
IL&FS's subsidiaries include transport network builder IL&FS Transportation Networks Ltd, engineering and procurement company IL&FS Engineering and Construction Co Ltd and financier IL&FS Financial Services Ltd.
IL&FS defaulted on some debt it owes banks in recent weeks, and its credit rating has been downgraded to junk from investment grade by ratings agencies.
The defaults triggered sharp falls in India's stock and debt markets in recent weeks amid fears about risk in the rest of the country's financial sector. That prompted the Indian government to take control of the company and replace its board with six selected nominees.
Government officials, however, have ruled out any direct state financial support for IL&FS, which has 348 businesses and gross debts of around 910 billion rupees ($12 billion). Government-owned firms, including Life Insurance Corp of India and State Bank of India, own nearly 40 percent of the company, while Orix Corp owns 23 percent, and the Abu Dhabi Investment Authority has a 12 percent stake.
There was also a plan to ask state-run road developer, National Highways Authority of India, to take over some of IL&FS' incomplete road projects and award them to other companies, government sources told Reuters last week.
Officials of India's finance ministry and market regulators met in New Delhi on Tuesday to discuss a liquidity crunch following the defaults by IL&FS.