Oriental Bank of Commerce, other lenders to pick 30% stake in Shriram EPC

Industry: Banking 2016-09-27

Mumbai: A consortium of lenders led by Oriental Bank of Commerce will take around 30% stake in Shriram EPC, the engineering unit of the $10-billion diversified Shriram Group, as part of a corporate debt restructuring package. The 14-member consortium — which includes Punjab National Bank, Axis Bank, IDBI and Central Bank — will convert slightly over Rs 1,200-crore loan into equity shares as the Chennai-based group works on trimming the debt and recasting the growth potential of its non-financial services businesses.

The promoter holding of Shriram Ventures will almost halve to 26%, making the lenders as a block the top shareholder of the EPC company. All the participating banks have given approval to the proposed equity conversion, which is expected to be completed in the next few weeks, M Murali, chairman of the non-financial services businesses of Shriram Group, told TOI. The banks and Shriram have been working on the loan-to-equity conversion deal for some time though specifics were not known.

The Shriram Group has separate holding companies for its financial and non-financial services businesses. Billionaire Ajay Piramal spearheads the financial services, which counts companies like Shriram Transport Finance and Shriram City Union Finance, among others. Murali, who took charge of the non-financial services unit last year, is attempting to rejig growth of non-financial services companies, including Shriram EPC, Shriram Properties, Oriental Green Power, Leitner Shriram Manufacturing and Take Solutions by tackling the debt problem some of them are facing.

The deal with the banks would reduce Shriram EPC’s outstanding loans to about Rs 600 crore, freeing the company to aggressively build the order book in the next 24 months. “We are looking at an order book of around Rs 10,000 crore domestically, and another Rs 4,000-5,000 crore from the Middle East and African markets. The banks converting loans into equity will help us to participate in the renewed infrastructure build-up by the central government,” T Shivaraman, MD, Shriram EPC, said. The banks are expected to allow fresh financing support to help the company’s bid to boost orders.

Shriram EPC has around Rs 3,000-crore orders currently. The company’s shares ended 3% lower at Rs 24 in a falling Mumbai market last Friday. Interest burden had pushed the company deep in red in the recent past.

“Non-financial services now account for about Rs 3,500 crore ($500 million) annual revenue. We hope to take their turnover to Rs 10,000 crore ($1.5 billion) within five years with headline numbers coming from Shriram Properties, EPC, and Orient Green Power,” Murali said. Orient Green Power is working on restructuring Rs 1,000-crore loan under 5/25 rule to soften the interest burden and spread the repayment over a longer period. “We want to focus on wind power in which we were early movers,” Shivaraman, son of the group’s founder R Thyagarajan, added. The company is spinning off 150 MW biomass unit, which has Rs 400-crore debt and is working on a roadmap to take wind power to 1,000 MW from 450 MW currently.