Lenders Intend To Consolidate Srei Group's Two Insolvencies
Financial creditors to Srei Group intend to pursue consolidated insolvency proceedings for its two non-bank lenders, according to four people in the know.
A meeting is likely to be convened before the month-end where banks and other creditors with exposures to Srei Infrastructure Finance Ltd. and Srei Equipment Finance Ltd. will finalise the plan, the people told BloombergQuint on the condition of anonymity.
A consolidated insolvency, or group insolvency, essentially allows creditors to merge all the assets and liabilities of the companies within a group. This is done when a consolidated entity is likely to see more bidding interest than individual companies or when interconnectedness between the entities is high.
The creditors plan to approach the National Company Law Tribunal for a judicial nod, after the vote is concluded, according to the people quoted above.
While the idea of a consolidated insolvency had been discussed earlier, a handful of financial creditors opposed it citing implications for small-value creditors, including non-convertible debenture holders.
Major financial creditors, the administrator and the advisory committee appointed by the Reserve Bank of India have all argued in favour of a consolidated insolvency, the people quoted above said.
Of 18 creditors involved with the two companies, 17 are common, according to the people cited earlier. The combined loan book of these two companies stands at around Rs 30,000 crore. As of June 30, Srei Infrastructure Finance had borrowings worth Rs 11,746 crore and Srei Equipment Finance owed its lenders Rs 20,411 crore, according to data available in court filings.
According to the first of the four people cited earlier, creditors have submitted claims worth around Rs 35,000 crore against the Srei Group companies. The RBI-appointed administrator is currently reviewing the claims, this person said.
Queries emailed to the Srei Group administrator and State Bank of India on Wednesday remained unanswered.
What Is The Opposition?
According to the opposing creditors, Srei Equipment Finance on its own has a much stronger balance sheet compared to Srei Infrastructure Finance. As such, any consolidated sale could lead to a loss of value for the former.
The proposal for a consolidated insolvency was expected to be voted on last week. However, opposing creditors said if they agree, it would mean that they have implicitly agreed to a July 2019 slump sale proposal by the group.
Promoters of the Srei Group had approved a slump sale, where the lending operations of the two companies would have been merged under Srei Equipment Finance, with Srei Infrastructure Finance becoming the holding company. That was opposed by the lenders back then.
In recent weeks, larger financial creditors have been holding unofficial consultations with smaller lenders, trying to convince them that a consolidated insolvency proceeding will benefit everyone.
If lenders proceed with individual insolvencies, then separating the two balance sheets would take considerable effort and time, the larger creditors have argued, according to the four people quoted above.
Moreover, Srei Infrastructure Finance also holds equity stake in about 20 other well-performing group companies. Bidders, who will take over a consolidated unit, will benefit from these equity holdings, the people cited earlier said.
Once the creditors discuss the issue, it will be put to vote, where if it gains more than 66% creditors' votes in favour of the proposal, it will sail through. The larger creditors are confident that they will get more than the requisite votes, the four people said.
According to internal timelines set by the financial creditors, they expect to put out requests for expressions of interest by mid-December 2021. By January, the creditors are expecting to receive firm offers from bidders and hope to begin negotiations. The process of finding a successful bidder should be completed by the end of February 2022, after which, the final nod from the National Company Law Tribunal will be sought.
While some potential bidders have reached out to the committee of creditors with queries, they are awaiting the proposal for EOIs to get a clearer sense of what they will be bidding for, the first two people cited earlier said.
On Oct. 4, the Reserve Bank of India announced that it was superseding the boards of Srei Infrastructure Finance and Srei Equipment Finance. Rajneesh Sharma was appointed as the administrator. By Oct. 8, the Kolkata bench of the National Company Law Tribunal had admitted insolvency petitions.
This is now the second instance where the RBI has used a special window of the Insolvency and Bankruptcy Code to put a non-bank lender under insolvency. In November 2019, it had invoked insolvency proceedings against Dewan Housing Finance Corp. The proceedings there saw delays owing to the Covid-19 pandemic, aggressive bidding among potential buyers and legal intervention by the former promoter. The case was finally resolved and DHFL was sold to Piramal Group this year.