SREI Infrastructure seeks debt recast to attract survival capital. Can it recover?

Kolkata-based infrastructure and equipment financier SREI Infrastructure Finance Ltd has sought a faster green signal from its lenders to recast its debt pile and parallelly asked for regulatory approval to bring new investors on board.

SREI Infrastructure had seen a sharp pop in its stock price in June when its share price more than doubled, but it has retraced its steps since then. On Wednesday, the company’s stock price shot up 5%—the maximum daily limit—despite reports that its CEO Rakesh Bhutoria had put in his papers. The company is yet to make any formal comment on the matter.

However, it has been facing a mass exodus as employees have jumped ship due to pending salary dues. Nearly a sixth of its 1,500 employees have quit over the past 10 months, as the company’s finances came under the control of the lenders. The lenders had put a cap on the salaries. While this was lifted in April, there are still arrears.

The debt-laden company has asked its lenders to clear the debt restructuring plan, a move that could help it steer away from the current impasse.

The lenders remain cautious on proceeding with restructuring of its debt that is estimated to be around Rs 28,000 crore. They are likely to decide the next course on the basis of an ongoing forensic audit.

The Reserve Bank of India (RBI) had executed a special audit last November of the company and its subsidiary Srei Equipment Finance. In April this year, the company hired KPMG and DmKH & Co as forensic auditors as per the advice of its lenders and independent directors.

Investors for survival capital

The company is believed to have attracted interest from close to a dozen global investors including Cerberus Capital for its arm SREI Equipment Finance. It later received non-binding term sheets from Arena Investors and Makara Capital Partners.

SREI has sent the documents related to the proposed investments into the firm to its lenders that include Axis Bank, UCO Bank and State Bank of India, as also the RBI.

Notably, even the proposed fund infusion into the company is dependent on the ongoing forensic audit and the RBI’s word on the fit and proper criteria.

What went wrong at SREI?

SREI had been facing stress due to the pandemic as it hit recoveries for its own lending activities as the hard lockdown and disruption in business activity affected its borrowers. Over half of its borrowers sought a loan restructuring at their own end.

The company had knocked on the doors of the National Company Law Tribunal for a moratorium on coupon payments and postponement of redemption dates until it completes a proposed merger of two group companies.

The Kolkata bench of the NCLT awarded a six-month moratorium on all loans of SREI and had asked creditors not to classify its loans as bad. It also asked the RBI not to take any action against the group and directed rating companies not to revise ratings during this period.

But the National Company Law Appellate Tribunal has now overruled the NCLT order and allowed banks to classify SREI Group’s loans as non-performing assets, multiple media reports said.