Lenders to SREI Infrastructure Finance Ltd. and SREI Equipment Finance Ltd. have set the debt restructuring process in motion by hiring forensic auditors and discussing potential solutions to the stress across the group’s entities.
According to two people with direct knowledge of the developments, lenders led by public sector UCO Bank and State Bank of India are considering a few options to restructure the debt of SREI Infrastructure. A restructuring of dues owed by SREI Group companies cannot be achieved without some form of operational restructuring, the people quoted above said.
As on Sept. 30, the consolidated borrowings of SREI Infrastructure stood at Rs 31,435 crore compared with Rs 33,108 crore a year ago. Bank borrowings contributed 59.49% to total borrowings, while non-convertible debentures constituted 13.27%.
One option being considered is to house all the bad loans under SREI Infrastructure, while the standard dues held by SREI Equipment can be restructured, according to the people quoted above.
Another option is to park all the bad loans with a special purpose vehicle, which can issue long-term bonds to lenders against their dues. As the underlying dues in these bad loans are recovered over time, the bonds can be redeemed by lenders at a later date, the people said. Meanwhile, the two companies can continue their normal business operations by servicing the good quality loans they have extended to borrowers, the people said.
Banks are also considering an option to change ownership of the lending businesses of the SREI Group, through an infusion of fresh equity. This equity infusion has become essential since SREI Infrastructure’s net worth went down to Rs 180 crore after losses accumulated in the wake of the Covid-19 pandemic from around Rs 4,000 crore in September, the people said.
The consolidated net worth of SREI Infrastructure, according to the last available investor presentation, stood at Rs 4,064 crore as of Sept. 30, 2020. In the quarter ended Dec. 31, SREI Infrastructure reported a consolidated net loss of Rs 3,811 crore compared with a net profit of Rs 60 crore a year ago. Total income fell 66% year-on-year to Rs 484.35 crore in the third quarter. Expenses rose sharply, as cost due to impairment of loans rose to Rs 2,833 crore compared with Rs 26 crore a year ago.