Understanding IL&FS and India's Move to Seize Control

For more than 30 years, Infrastructure Leasing & Financial Services Ltd. has arranged the financing for some of India’s major infrastructure projects. In the process, the financier turned its hand to project development and began amassing huge debts -- $12.6 billion to be precise. When interest rates on its short-term borrowings spiked this year, IL&FS ran out of cash. As the group began missing repayments, investors grew concerned that the fallout would infect similar companies and even the wider economy. But before fear had time to turn to panic, the Indian government stepped in.

It unexpectedly seized control of IL&FS, saying the group would otherwise have collapsed. Officials promised to end a string of defaults by IL&FS and ordered an inquiry by the Serious Fraud Investigation Office. Out went the old leadership and in came a new six-member board that included India’s richest banker, the chairman of its fourth-largest listed bank and the ex-head of its securities market regulator.