Companies
Heartburn on bond street as Srei firms approach bankruptcy
Summary
Bondholders received 1.25-43.8% of their investments in the DHFL insolvency resolution, depending on whether they were secured or unsecured and how they voted on the resolution plan. Only those who had dues up to ₹2 lakh were paid in fullMUMBAI : Impending bankruptcy proceedings of two Srei group companies have led to jitters among their retail bondholders, who fear a repeat of the sharp haircuts in the recent Dewan Housing Finance Corp. Ltd (DHFL) case.
The Reserve Bank of India (RBI) on Monday seized Srei Infrastructure Finance and Srei Equipment Finance Ltd, citing governance issues and payment defaults, ahead of referring them to the National Company Law Tribunal (NCLT).
Bondholders received 1.25-43.8% of their investments in the DHFL insolvency resolution, depending on whether they were secured or unsecured and how they voted on the resolution plan. Only those who had dues up to ₹2 lakh were paid in full.
Hyderabad-based Subroto Banerjee has been second time unlucky. The 55-year-old former pharmaceutical industry professional, who had invested ₹60 lakh in Srei Equipment Finance’s bonds in 2017, had earlier invested in DHFL bonds as well. “I am certain even the Srei resolution would take at least another two years. We have not been paid any interest since January, and this will just prolong our troubles," Banerjee said.
Ajit Mehta, whose wife had invested ₹1 lakh in Srei Infrastructure Finance bonds in 2017, has seen the value of the investment collapsing to ₹21,000. The 40-year-old chartered accountant from Mumbai also believes he will have to wait for a few years until he gets repaid with a haircut. “Unfortunately, I have also lost ₹1.3 lakh owing to DHFL shares getting delisted after the resolution," Mehta said.
Together, Srei Equipment and Srei Infrastructure have bank loans of ₹28,030 crore and bonds of ₹1,210 crore, all of which were assigned a default rating by Care Ratings in March.
Some investors have already sold their papers at a significant haircut. Raj Kumar Sur, a retiree from Kolkata, sold his Srei Equipment Finance bonds worth ₹4.5 lakh at a 65% haircut in July.
On Monday, RBI appointed former Bank of Baroda (BoB) chief general manager Rajneesh Sharma to administer the two Srei companies, aided by a three-member advisory committee.
The committee members are R. Subramaniakumar, former chief of Indian Overseas Bank and former administrator of DHFL; T.T. Srinivasaraghavan, former managing director of Sundaram Finance Ltd; and Farokh N. Subedar, former chief operating officer and company secretary of Tata Sons Ltd.
Srei’s problems could be traced back at least to November last year when RBI decided to conduct a special audit of its books. Its lenders, too, decided to monitor the companies’ cash flow.
Then, in December, Srei was granted a repayment moratorium by the Kolkata bench of the NCLT from 1 January to 30 June.
Under this scheme of arrangement, the company proposed to make repayments to various categories of debenture holders over various periods. However, several stakeholders challenged the NCLT order in the National Company Law Appellate Tribunal.
Many lenders have now classified their loans to Srei as non-performing in the September quarter, requiring additional provisions.
In a December interview, Hemant Kanoria, chairman of Srei Infrastructure Finance, blamed its credit woes on the covid-19 pandemic.
“It got further compounded as payments of our borrowers have been stuck with the government agencies and arbitration awards remaining unresolved due to the intermittent operations of courts because of covid-19. All these factors have led to a cash-flow mismatch," Kanoria had said.
On Monday evening, a Srei spokesperson said the company was “shocked by the RBI’s move" as banks have been regularly appropriating funds from the escrow account they have controlled since November 2020.
