Just a day after the administrator for Srei group companies — Srei Infrastructure Finance (SIFL) and Srei Equipment Finance (SEFL) — refused to accept the resolution plan submitted by its erstwhile promoters to withdraw the companies from insolvency and settle the entire claim of around ₹32,000 crore, Hemant Kanoria, founder and erstwhile promoter of Srei, said the next step is to revert to the administrator’s letter and also take legal recourse on the same.
The resolution plan, which the erstwhile promoters say is the “proposal with highest value and merit”, is a “last effort” to save the companies, which according to them has not been doing any business over the last 16 months since being admitted into IBC.
In an exclusive e-mail interaction with businessline, Kanoria reiterated that the problems at Srei were more to do with cash flow mismatch in the wake of Covid-induced slowdown and that, through dialogue, it is possible to reach a resolution that can be beneficial to all stakeholders. Excerpts:
Reports suggest that the administrator has rejected the resolution plan on technical grounds. What will be your next step? Do you think this last minute proposal to bring Srei out of insolvency through section 12A of IBC was a decisive move?
We had submitted the resolution plan to the administrator as he is the appointed representative of RBI as per law. In the interest of the public, we have requested him to share the same with the committee of creditors (CoC) so they can put it to vote, as the offer is the highest on merit and value.
It may seem to be a last-minute proposal by Adisri, the largest shareholder of Srei Infrastructure Finance, to save the companies. It is sad that in the last 16 months, the companies have been doing no business and the process of victimisation of borrowers and erstwhile directors seem to be objective.
The corporate insolvency resolution process (CIRP) which commenced in October 2021 was done despite Srei Infra having no external debt and Srei Equipment not being an NPA. Subsequently, from June 2022 till even last week, almost regularly all borrowers are being negatively tagged, thereby leading to chaos. Even the IBC process, wherein the bids had come in by September, was cancelled and a new EOI (expression of interest) was floated.
Many retail investors, both shareholders and bondholders, and several borrowers have been approaching the founders. Therefore, in the interest of all, Adisri has presented a proposal for payment of ₹32,500 crore through various structures/instruments.
Do you feel the CoC will accept your offer or hold a grudge, given that your earlier proposal for full payment in October 2020 under Section 230 was also not accepted?
Unfortunately, the esteemed board of both companies was superseded, while the proposal under Section 230 for making full payment to the creditors with interest was rejected by the bankers without any logic or discussion. However, we hope that this revised offer will help open doors for a logical dialogue with the bankers, so that they can see the value that our plan brings to the organisation, its investors and the public at large.
There is the question of default to banks in 2021 in Srei companies. So how will the CoC react?
The pandemic affected various businesses, and Srei being in infrastructure, was impacted quite severely. Also, as most of our clients are in the MSME space, and so it is important that as a group, we continued working with them during this period. Unfortunately, the moratorium which was extended to Srei’s borrowers, was not extended to the NBFC which led to a mismatch in cash flow. While our debt obligations to the banks still needed to be met, Srei borrowers enjoyed the moratorium relief.
We hope that the CoC understands that the spiralling of this situation is macroeconomic-driven, and that we can, through dialogue, reach a resolution that can be beneficial to all stakeholders. Srei has directly and indirectly created millions of jobs in India and empowered lakhs of entrepreneurs across the country. It would be very sad to see such an institution destroyed.
In case Srei is restored, what would be the focus areas for you?
Since the company went into IBC in October 2021, there has been a significant erosion of value due to the lack of comprehension of infrastructure-financing business. While recovery is extremely important to our business in order to meet debt obligations, it is equally important to ensure that disbursements of new loans occur simultaneously as it helps instill confidence among our existing clients as well as potential clients. This in turn also helps maximise returns to investors and hence a rippling effect.
Srei had built a very strong team that worked very closely with more than one lakh clients helping them grow, prosper and pay. The company never defaulted on any of its debt obligations in over 32 years.
What message would you like to convey to the investors (institutional and retail) who have been impacted the most through this process?
Over three decades, Srei’s ethos has always been to ensure and protect all investors through the highest levels of transparency, governance and impeccable track record of zero default. The strong relationship with the bankers, regulators and overseas institutional investors and retails investors has been one of the primary reasons Srei grew to be one of India’s largest infrastructure NBFCs. I hope that the proposal under section 12A will enable the highest value creation. It is important to understand that the business model of a bank and an infrastructure or equipment finance company are different. Unfortunately, the flexibility of NBFCs is being superimposed on the rigid guidelines of banks.