Lenders to the bankrupt Srei Group are hoping that consolidation of the two debt-laden companies – Srei Infrastructure Finance and Srei Equipment Finance – will enhance its value and ensure a better recovery for Rs 30,000 crore in stuck dues.
Lenders are set to seek National Company Law Tribunal (NCLT) approval for consolidation of debt in the next few days following which creditor claims will be ascertained and bids will be called to find a buyer for the company.
“Lenders overwhelmingly have voted to consolidate the debt of both companies. Nearly 90% of the votes went in favour of consolidation,” said a person involved in the resolution process. “Now after the NCLT approves, we can get down to the real deal. We think consolidation will make resolution easier and quicker and also increase chances of getting a good value for the debt since it will give the buyer full control over the group’s assets.”
ET had reported the possibility of lenders considering consolidation of the debt in its November 3 edition.
Srei Infrastructure, and its subsidiary Srei Equipment Finance, together owe lenders and debenture holders close to Rs 30,000 crore which includes loans financing some road assets, construction and mining equipment and also some inter-corporate loans which lenders will have to deal with.
“Inter-corporate loans will have a lower rating in the waterfall. Debt will be dealt with according to its seniority and a recovery ratio will be arrived at based on the bid received by lenders with recovery sliced to the type of loans and the company. But that stage is much later as we are in very early days of the resolution,” said a second person involved in the process.
Banks expect the resolution process to stretch to mid-2022.
Kolkata-based UCO Bank is the lead lender to the group followed by Bank of India and State Bank of India (SBI). These three banks each have an exposure of more than Rs 2,000 crore to the group.
The debt is consolidated in these two lending businesses which had a majority of borrowings from banks and also had raised funds from the market. The group also has fee-based businesses, namely Srei Capital Markets, Srei Insurance Broking and Trinity Alternative Investment Managers. These will also be sold as one consolidated entity.
The promoters of Srei Infrastructure had been pursuing a merger with Srei Equipment Finance since 2019, proposing a moratorium on interest payments and delay in debt redemption as part of a proposed restructuring plan. However, banks had opposed the merger because they were not in favour of the moratorium. Finally, the National Company Law Appellate Tribunal (NCLAT) set aside an order by the Kolkata NCLT against classifying Srei’s loans as NPAs, paving the way for a formal RBI monitored bankruptcy process.
“We are hoping that the consolidation of debt will give us a better chance of realisation since bidders can take a big picture view of the company’s books and also value the allied services,” said a third person involved in the process.
Consultancy firm EY has been appointed as an adviser, while law firm Shardul Amarchand Mangaldas (SAMS) has been appointed as the legal advisor to the administrator, Rajneesh Sharma.
Srei is the second NBFC to be taken to the bankruptcy courts after DHFL whose resolution was completed earlier this year. The RBI has also appointed a three-member committee to advise the administrator during the process.