srei: Lenders of Srei’s two financial firms seek group resolution
Last month, RBI replaced the board of directors of Srei Infrastructure Finance Limited (SIFL) and Srei Equipment Finance Limited (SEFL).
According to initial estimates, the top ten lenders Canara Bank, PNB, UBI, SBI, BoB, Indian Bank, P&S Bank, Central Bank and BOI – together account for over Rs 20,000 crore of a consolidated loan of Rs 31,527 crore between SREI and SEFL. This would give them 65% of the voting rights if the receivables were consolidated. According to the memo, there wouldn’t be much variation in the voting rights of the top 10 lenders if a group approach were taken.
Bankers said that various investments in connected entities and their other issuing companies, viz. Bharat Road Network, Trinity, Power Trust (which may have equity value in the future) are hosted in SIFL while exposure to these entities is partly through SEFL; thus, dissociating the two entities would hamper the objective of maximizing value if resolution requesters were not authorized to access the synergies between the various companies of the group.
Incidentally, before the board of directors was replaced, Srei’s promoters had sought to consolidate the two companies by transferring the business from Srei Equipment to Srei Infra through a business transfer agreement. However, the proposal was rejected by the lenders.
The administrator, however, pointed out in his memo that a group resolution is different from the business transfer plan proposed by the promoters as the rights of individual creditors to their secured assets would be retained. In addition, the creditors’ committee, which is exposed to both companies, will have a say in the allocation of assets and can ensure that the rights of those who hold specific collateral are protected.
In addition, EY, which has been mandated by the company to help with consolidation, continues to assist the company led by the director in adopting the group approach.
Group resolution is useful in a situation where the liability belongs to one company while the value resides in other companies. A similar group resolution approach was taken successfully in IL&FS where a significant portion of the liabilities were with the parent company and other holding companies where the assets were in 300 companies.