The first meeting of the committee of creditors (CoC) of Srei Equipment Finance Ltd (SEFL) is scheduled to be held on 2nd November at Marriott in Kolkata under regulation 19 of the Insolvency and Bankruptcy Rules (IBC) 2019.
The CoC is expected to discuss and update on the corporate insolvency resolution process (CIRP) and its timelines, status of claims and composition of the CoC, cash-flow position, expense budget and way forward on modalities of running the resolution process.
As debenture trustee, Axis Trustee Services Ltd will be attending the meeting on behalf of debenture-holders. The meeting minutes and voting process will be uploaded after the meeting and will be intimated via emails. Debenture-holders are not expected to attend the meeting.
Axis Trustee Services, the debenture trustee for various listed secured and unsecured NCDs (non-convertible debentures) issued by the Srei group, has written a mail to NCD-holders with the details. NCD-holders can write to Axis Trustee Services at their dedicated email id [email protected]
or reach them on their WhatsApp number 8104889519.
Earlier, the NCDs issued by Srei Infrastructure Finance Ltd (SIFL) were transferred to SEFL via a slump sale approved by the BSE on 26 February 2020.
While Axis Trustee Services has adopted a proactive stance in communicating with the investors
right from the beginning of the year, Catalyst Trusteeship is in stark contrast, at the other end of the spectrum with no communication to investors and a severely clogged email ID, which bounces back any sent emails. Debenture trustees play a crucial role in representing the debenture-holders, protecting their interests and communicating effectively with the investors.
Catalyst Trusteeship showed very little interest and a total lack of communication throughout the IBC proceedings of DHFL, irate investors said. The same thing is also happening in the DS Kulkarni Developers (DSK) case. This makes Catalyst’s claims of “enhanced speed of ease of communication in default cases of debentures” appear laughable.
The special audit conducted by RBI during December 2020-January 2021 observed that funds disbursed to certain borrowers were received back from such borrowers or their group companies on the same date or dates close to the disbursement date, indicating evergreening.
In April this year, Srei appointed KPMG Assurance and Consulting Services LLP and DMKH & Co, chartered accountants, to conduct a forensic audit as part of its proposed debt realignment. Srei’s consolidated borrowings as of 30 September 2020 was at Rs30,000 crore.
Banks are preparing to classify loans worth Rs35,000 crore made to Srei group as non-performing assets (NPAs) in the September quarter.
This is the second instance after DHFL, where an NBFC (non-banking finance company) has been referred for insolvency at the banking regulator’s direction.
Experts pointed out that Srei companies own infrastructure assets compared to DHFL, which had home loan borrowers, branches, and an excellent geographical presence. Even then, lenders of DHFL had to accept about 65% haircut. DHFL had more retail loans while Srei group has more lumpy infrastructure lending (similar to what is seen in IL&FS case)—for instance, loans for roads and power projects.
While Piramal was interested in buying DHFL’s retail home loan portfolio (which became attractive even as interest rates fell and the realty market appeared to recover after a long period of distress), it will likely be a challenging task to find a buyer for infrastructure assets and the Srei group is a tangled, complex web of holding companies, subsidiaries, funds, asset management companies (AMCs) and trusts.
The Kanoria Foundation is at the top and has four fully-owned holding companies—Aksara Commercial, Adisri Commercial, Adishakti Commercial & Vara Technology—through whom it owns its web of almost 50 companies. SIFL has lent to a few companies in which Kanoria Holding has an indirect or even direct interest. For instance, it has loaned to Shrishti Infra, which Adishakti Commercial owns, while SIFL itself is owned by Adishakti Commercial. A lot of such transactions can be seen in the group which led RBI to order an audit earlier this year.
The Kanoria Foundation has also floated trusts which, in turn, invested in some companies. For instance, IPCL, a company owned by Aksara Commercial, transferred its investment division to Power Trust. It is not known who are the beneficiaries of this trust. Still, since it was formed out of assets owned by a Kanoria subsidiary, it is possible that the Kanoria Foundation and/or the Srei group could be a beneficiary, if not the biggest beneficiary of the trust. Bankers believe that SIFL has lent some companies owned by the Trust which appear to be related lending.
The Kanoria Foundation has also floated funds such as Srei Alternate Investment Trust and Srei Multiple Asset Investment Trust which own companies that SIFL and SEFL have lent to.
Loans to some group companies have been lent at attractive rates for the long term -1% for the first five years, with interest bunched up to yield 12% from the 5th to the 8th year.
Both Srei companies are non-deposit taking NBFCs; hence, unlike in the DHFL case, investors have only invested in NCDs, and there are no funds stuck in company deposits.
Many of these investors (mostly senior citizens) invested in the bonds in the hope of getting better returns on their investment since Srei group was offering up to 11.75% interest per annum (along with an additional 0.25% for shareholders, existing bond-holders and senior citizens), at one point of time.