MUMBAI: Creditors to the two finance companies in the Srei group that are facing bankruptcy action are considering a group approach to the insolvency resolution. Such an approach is expected to get faster results and better value for the banks that are owed money from the SREI companies.
Last month RBI had superseded the board of Srei Infrastructure Finance Limited (SIFL) and Srei Equipment Finance Limited (SEFL).
As per initial estimates, top ten lenders Canara Bank, PNB, UBI, SBI, BoB, Indian Bank, P&S Bank, Central Bank and BOI – together represent over Rs 20,000 crore of a consolidated loan of Rs 31,527 crore between SREI and SEFL. This would give them 65% voting rights if claims are consolidated. According to the note, there would not be much of a variation in the voting rights of the top 10 lenders if a group approach is taken.
Bankers said that various investments in connected entities and their further investee companies viz. Bharat Road Network, Trinity, Power Trust (which may have equity value in future) are housed in SIFL whereas exposure to such entities is partly through SEFL; thus, disentangling the two entities would hamper the objective of maximisation of value if the resolution applicants are not allowed access to synergies between different group companies.
Incidentally, before the board was superseded the promoters of Srei had sought to consolidate both the businesses by transferring the business of Srei Equipment to Srei Infra through a business transfer arrangement. However, the proposal was rejected by the lenders.
The administrator has however pointed out in his note that a group resolution is different from the business transfer plan proposed by the promoters as rights of individual creditors on their secured assets would be retained. Also, the committee of creditors, who have exposure to both companies, will have a say in the distribution of assets and can ensure that the rights of those who hold specific security are protected.
Incidentally, EY, which was appointed by the company to help in the consolidation, continues to assist the administrator-led company in taking the group approach.
The group resolution is found useful in a situation where the liabilities are with one company while the value lies in other businesses. A similar group resolution approach was successfully adopted in IL&FS where a significant portion of the liability was with the parent and other holding companies where the assets were across 300 companies.
Last month RBI had superseded the board of Srei Infrastructure Finance Limited (SIFL) and Srei Equipment Finance Limited (SEFL).
As per initial estimates, top ten lenders Canara Bank, PNB, UBI, SBI, BoB, Indian Bank, P&S Bank, Central Bank and BOI – together represent over Rs 20,000 crore of a consolidated loan of Rs 31,527 crore between SREI and SEFL. This would give them 65% voting rights if claims are consolidated. According to the note, there would not be much of a variation in the voting rights of the top 10 lenders if a group approach is taken.
Bankers said that various investments in connected entities and their further investee companies viz. Bharat Road Network, Trinity, Power Trust (which may have equity value in future) are housed in SIFL whereas exposure to such entities is partly through SEFL; thus, disentangling the two entities would hamper the objective of maximisation of value if the resolution applicants are not allowed access to synergies between different group companies.
Incidentally, before the board was superseded the promoters of Srei had sought to consolidate both the businesses by transferring the business of Srei Equipment to Srei Infra through a business transfer arrangement. However, the proposal was rejected by the lenders.
The administrator has however pointed out in his note that a group resolution is different from the business transfer plan proposed by the promoters as rights of individual creditors on their secured assets would be retained. Also, the committee of creditors, who have exposure to both companies, will have a say in the distribution of assets and can ensure that the rights of those who hold specific security are protected.
Incidentally, EY, which was appointed by the company to help in the consolidation, continues to assist the administrator-led company in taking the group approach.
The group resolution is found useful in a situation where the liabilities are with one company while the value lies in other businesses. A similar group resolution approach was successfully adopted in IL&FS where a significant portion of the liability was with the parent and other holding companies where the assets were across 300 companies.
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