Catalyst Trusteeship, the debenture trustee for non-convertible bonds (NCDs) issued by two Srei group companies has sent an email to all NCD holders late last night. The mail is seeking the consent of debenture holders for voting (on their behalf) in favour of or against the ‘scheme of arrangement’ proposed by Srei at the Kolkata bench of NCLT (National Company Law Tribunal) in December 2020.
As per the mail, Srei Equipment Finance Limited (SEFL) had issued a notice on 22nd June for convening the meeting of debenture trustees representing individual NCD holders of SEFL on 24 July 2021 at 2.30 pm for, inter alia, voting on the repayment scheme by the debenture trustees on behalf of the NCD holders.
Many retail investors have invested in both SEFL as well as Srei Infrastructure Finance Ltd (SIFL), and both companies paused interest payments and redemptions from 1 January 2021. The amount due to individual NCD holders of SEFL is Rs 1,503.31 crore as on 30 November 2020.
There are two specific points put up for voting in one resolution.
While the first part seeks approval for the proposed “scheme of arrangement” or repayment plan, the second part seeks approval to grant power/ authority to the company’s board of directors or committee appointed by board to effect the repayment plan and implement it as they deem it fit.
Srei has appointed Karvy FinTech Private Limited (https://evoting.karvy.com
) to provide the e-voting facility to the debenture trustees representing individual NCD holders.
For individual NCD investors, e-voting will commence on Friday 2nd July and end on 21st July Wednesday at 6.00 pm. User ID and password will be shared separately by Linkstar Infosys Pvt Ltd. before commencement of e-voting.
The Srei group had frozen interest payments and redemptions of NCDs from 1 January 2021 to 30 June 2021. This happened in the wake of an order from the Kolkata bench of NCLT on 30 December 2020, which allowed a moratorium
on the company.
In a statement released on 1st January, the Srei group had said “For the first time in our history, and due to COVID-19 and key regulatory compliances, we are compelled to defer payments to creditors including NCDs. All payments will be rescheduled through the proposed schemes. Please have patience as we value your long-term confidence.”
Axis Trustee Services Ltd, IDBI Trusteeship Services Ltd, Catalyst Trusteeship Ltd moved the NCLAT (National Company Law Appellate Tribunal) in an appeal against the NCLT order. While hearing was held on several dates in February, March and April, no interim orders have been issued. The next NCLAT hearing is on 5th July.
The six-month moratorium period ended yesterday. Srei had committed in its proposed ‘scheme of arrangement’ to repay all the interest falling due during the moratorium period by 15th July. “Any coupon/interest accrued and payable to the Secured Debenture Holders during the Moratorium Period shall be paid by SEFL within 15 (fifteen) days from the expiry of the Moratorium Period,” Srei Equipment Finance had stated then. Further, the redemption dates of the secured NCDs also stand postponed by a period of two years.
The company has claimed “The Scheme is in the best interests of all the stakeholders of SEFL”. Yet, it also says no valuation was required to be done.
It is not known if the company has the money to repay all the interest payments (which fell due during the moratorium) this month. Retail NCD investors are advised to vote with extreme caution after reading all the documents shared by the debenture trustee carefully.
The freeze on interest payment and redemption of NCDs has hit hard the retail bond investors, many of whom are senior citizens, who rely on the interest payments for their day-to-day living.
Meanwhile in a separate press release issued today, Srei Infrastructure Finance Limited, and its wholly-owned subsidiary Srei Equipment Finance Limited, have announced plans to raise significant capital in both the companies.
Srei Infrastructure Finance said its board has approved a resolution to raise up to Rs 2,500 crore through various means, including public offer or qualified institutional placement (QIP) or private placements or preferential issue or rights issue. The board of directors in their meeting on Thursday has passed a resolution to raise up to Rs2,500 crore.
While Singapore-based Makara Capital Partners has offered a term sheet for an investment of Rs2,200 crore by way of infusion of capital into the company, US-based Arena Investors LP has shown interest in a Rs2,000 crore of investment into SEFL. The company's strategic coordination committee (SCC), led by independent directors, is currently evaluating these proposals and taking necessary steps, said the statement.
Besides, the company has received Expression of Interest (EOI) from several other global private investment firms, including Cerberus Global Investments, Charlestown Capital Advisors, CarVal Investors LP, Varde Partners Asia, and Maystone Capital. The press release claims “Many investors have expressed their desire to invest in Srei…”
The company also sounded a thinly veiled cautionary note for the regulators and the government while urging them to understand the ground situation. “In the wake of this once in a hundred years pandemic, it has become imperative for the government and regulators to understand the specific problems of the players in the infrastructure sector, both financiers and operators. If the financiers' and their borrowers' problems are not resolved, it may result in wiping out many companies, which will later lead to higher cost for infrastructure creation as only few players will remain,”the company says.
The company also says that it has been working closely with its clients for resolution and recovery but it will take time and patience to resolve the problems. The company further added “However, since most of Srei's loans are backed with assets and cash flows, Srei remains confident of making significant recovery once the macro situation stabilises”.
The company crisis has also led to mass-level exits, across all levels, from the company since December 2020. Nearly 250 employees of the company are learnt to have left the company so far, mainly because the lenders’ consortium to Srei has taken control of the cash flows of the company.
The lenders’ consortium had also put a salary cap at a maximum of Rs 50 lakh, which has since been lifted. Sources say that the clearance of arrears of those senior-level executives whose salaries were curbed is still due and this might prompt further high-level exits from the company.
Ex-DHFL Director Inducted Into Board
On Thursday, Srei Infrastructure Finance also announced the appointment Deepali Pant Joshi as an independent director on its board. Joshi served as an Executive Director of the Reserve Bank of India (RBI) from January 2013 till December 2017.
It might be recalled that Joshi was similarly appointed as an independent director on the board of directors of DHFL in May 2019. In November 2019, the RBI superseded the board at DHFL and appointed R Subramaniakumar as its administrator to run the affairs of the company.
Many NCD holders had invested in both DHFL and Srei and with both these companies stopping the interest payments on the bonds, retail investors are under pressure and feel victimised since they were led to believe that companies were in sound financial health due to the AAA or AA ratings issued by the credit rating agencies.
DHFL is seeing a lot of complicated litigation with cases filed in various courts by different stakeholders. In case of DHFL, many NCD holders stand to lose around 65% to 75% of their invested amounts if the already approved resolution plan (by Piramal Capital) is accepted and goes through.
The RBI, which stepped in to handle DHFL, after the banks and DHFL failed to agree on a resolution plan to bring the firm back on the rails, initiated the bankruptcy process under the Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019. DHFL is currently undergoing the liquidation process and has seen many twists and turns in the last one month. You can read more about it here