Srei Group companies facing bankruptcy proceedings
More skeletons are tumbling out of Kolkata-based Srei Group companies - Srei Infrastructure Finance and its wholly-owned subsidiary - Srei Equipment Finance -- which are facing bankruptcy proceedings for defaulting on the loans of over Rs 30,000 crore.
The Reserve Bank of India RBI had earlier superseded the boards of the two companies in October last year, citing governance issues.
According to available information, the Srei Equipment Finance had converted a loan obligation and had given a preference share capital to a group company, Quippo Oil Gas Infrastructure.
Sources suggest that the first loan of Rs 200 crore was given by Srei Equipment Finance to Quippo Oil in December 2018. On August 16, 2019 it extended another loan of Rs 50 crore. The subsidiary was not able to pay interest as well as the principal amount due to these two loans turning NPAs.
A loan outstanding of Rs 225 crore in the initial facility and Rs 56 crore in the second loan was due on March 21, 2021, according to a loan outstanding of Rs 225 crore.
In the post-Covid period, the Srei Infrastructure Finance restructured the loan as a mix of term loan and redeemable convertible preference shares at the request of Quippo Oil. As part of the restructuring, Rs 82 crore was treated as a rupee term loan. The second part of the 200 crore was converted into fully paid-up redeemable cumulative optionally convertible preference shares.
This conversion of loan into shares was done at a premium for a defaulting company like Quippo and without a rating from a credible rating agency. A mail to the RBI Administrator and Srei Equipment didn't elicit any response at the time of publishing the story.
The loan liability of the group company was reduced because of the conversion of a 200 crore loan into preference shares. The default for Srei Equipment Finance would have resulted in higher provisions, lower profitability, and higher non-performing loans.
Srei Group NBFCs are the second big RBI-directed bankruptcy case, as the regulators had earlier taken Dewan Housing and Finance to IBC, and so the Piramal Group successfully bought the housing finance company.
Quippo Oil and Gas Infrastructure is a 15-year-old drilling services contractor with operations in India. It was initially a wholly-owned subsidiary of Srei Infrastructure Finance Ltd, but it stopped being a subsidiary with effect from Mach 31, 2019.
The NBFC sector was facing a lot of problems because of the severe liquidity crises when these loan facilities were sanctioned. The debacle of infrastructure financing institution IL&FS happened exactly during that time.