Financial creditors of two non-bank finance companies of the Srei group — Srei Infrastructure Finance (SIFL) and Srei Equipment Finance (SEFL) — may evaluate the prospect of a consolidated insolvency proceeding.
The corporate insolvency resolution process has been initiated in the two companies separately and two cases have been admitted with the Calcutta bench of the NCLT after the RBI superseded their boards on October 4, 2021.
A consolidated insolvency proceeding may garner more interest among potential bidders than individual companies. Sources said the lenders are keen to look into all possibilities that will benefit all the stakeholders.
The total liabilities are around Rs 18,000 crore of bank loans and another Rs 10,000 crore of external commercial borrowings and bonds. The corporate insolvency resolution process will help the lenders recover debt but there are concerns over haircut.
According to insolvency professionals a consolidated proceeding will allow the discovery of true value of assets which are stacked in different companies. Moreover, with one resolution professional the decisions will be more holistic.
The issue emerges from a 2019 decision where the board of directors of the two NBFCs approved the transfer of lending business, interest earning business and lease business of SIFL as a going concern through a slump sale to SEFL in exchange of fully paid up equity shares and SEFL became a wholly owned subsidiary of SIFL. The rationale at that point was to strengthen the asset books of SEFL with equipment finance being the focus area of the group.
The lenders were wary of the slump exchange and the credit rating agencies had also expressed concern as the advances of SIFL were to companies which are involved in the execution of infrastructure projects which is different in nature to equipment financing.
RBI also in its inspection report and risk assessment report for the year ended March 31, 2021 had identified 'certain parties’ as probable connected/related companies.
The creditors would have to approach NCLT for a judicial approval with a majority but there could be varying views.
A consolidated insolvency proceeding would imply that the lenders would have to factor in the slump sale, to which they were not in favour. Moreover, NCLT courts are wary on allowing group insolvency. The Insolvency and Bankruptcy Board of India had constituted a working group to evaluate group insolvency and a framework has been recommended to facilitate insolvency resolution and liquidation of companies in a group.