The Reserve Bank of India is expected to initiate the resolution process for Srei Infrastructure Finance and Srei Equipment Finance soon, and experts expect it to generate great interest from potential investors.
“RBI’s decision is a clear statement that RBI does not believe Srei’s promoter and management team are capable of resolving stress. Additionally, with DHFL’s insolvency resolution success, the RBI and the group of lenders must be confident in preserving value and in a credible resolution even for Srei, ”said Bikash Jhawar, Partner, Saraf & Partners.
See also: RBI Replaces Boards of Directors of Two Indebted Srei Companies
He added that he expects a reasonably high level of interest in Srei’s business with an economic outlook, especially in infrastructure and manufacturing, which looks good.
“Srei has strong ties with physical companies and developer groups in India and these relationships can be very interesting,” he added.
Related Resolution Srei Infrastructure Finance and Srei Equipment Finance have debt obligations over 29,000 crore with bank facilities over ₹ 28,000 crore.
“There will be a lot of interest in Srei’s businesses. DHFL paved the way for a successful resolution of financial services companies, ”said another expert who declined to be named.
Revised credit scores
According to the recent CARE Ratings rating in March of this year, Srei Equipment Finance has long-term and short-term banking facilities of 16,912.21 crore, non-convertible debentures (NCD) of just over 352 crore, Level II unsecured subordinated NCDs. of ₹ 109.8 crore and perpetual debt of ₹ 37.5 crore.
As of March, Srei Infrastructure Finance had short- and long-term bank facilities of 11,117.71 crore, long-term infrastructure bonds of 20.22 crore, NCD of 95.9 crore and unsubordinated NCDs. Guaranteed Level II of 594.51 crore.
According to a report by Acuite Ratings in March, Srei Equipment Finance had MNTs of 3,492.45 crore.
CARE Ratings and Acuite have revised their ratings for Srei companies.
According to sources, UCO Bank, Punjab National Bank and State Bank of India are among the most exposed to the two companies.
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However, most of the banks have provisioned their exposure to both companies.
Replacement of boards
The RBI had, on October 4, replaced the boards of directors of Srei Infrastructure Finance and Srei Equipment Finance (SEFL), paving the way for their resolution. He also appointed Rajneesh Sharma, former Chief Managing Director, Bank of Baroda, as a corporate director under section 45-IE (2) of the RBI Act.
On Tuesday, Srei Infrastructure Finance was down 5% to 8.17 each on BSE.
The impact of the Covid
Hemant Kanoria, former chairman of Srei Infrastructure Finance, said in the annual report that the company mainly relies on borrowing from banks and other lenders for the deployment of funds towards financing the creation of assets. The Covid pandemic has had a negative effect on its customers, which has affected cash flow, resulting in muted collections, he said.
The company had also reduced its infrastructure portfolio and realigned the equipment financing business to current regulations, but it was “derailed” to some extent by the pandemic.