Accept bids at the earliest and allow Srei companies to start operations by October: Hemant Kanoria

The administrator for the Srei group companies should accept one of the two bids submitted by resolution applicants at the earliest so as to ensure that the companies can start their operations by October and continue to support the construction and infrastructure companies.

According to Hemant Kanoria, founder and erstwhile director of Srei, the company has played a leadership role in the infrastructure for the sector in the country and it will be a misfortune for the sector to see that the Srei companies “die”.

It is to be noted that the Srei group companies – Srei Infrastructure Finance and Srei Equipment Finance- which are under the corporate insolvency resolution process, have received two resolution plans. Varde Partners and Arena Investors have jointly submitted one for around ₹14,000 crore, while the second bid submitted by Shon Randhawa and her partner is for around ₹10,000 crore. 

“It is good to read from the newspapers that there are serious bids and I hope that the administrator accepts one of them at the earliestso that the companies may start their operations by October and continue to support the construction and infrastructure companies. Srei has played a leadership role in the infrastructure sector in the country and it will be a misfortune to see the Srei companies die,” Kanoria told BusinessLine.

Both Srei Infrastructure and Srei Equipment were strong companies and in October, 2021, when the administrator took over the companies, the contractual dues were about ₹50,000 crore against claims of ₹31,000 crore. In addition, there has been recovery of over ₹6,000 crore in the last 18 months despite banks stopping business of these companies since November 2021. With a positive asset to claim ratio and strong underlying assets, it provides a good recovery for the creditors, he said.

When asked how the resolution plan was different from the one proposed by the promoters earlier, he said, “We had offered full payment, with interest, to all creditors in October 2020 that was rejected by the bankers in August 2021 in the court. At present the creditors, as per reports, are targeting a 20-40 per cent recovery through bids. It is for the experts to decide which was the better offer and who should be targeted/held responsible for the gap.”

Constant flow of funds needed

Infrastructure needs a constant flow of funds, and regular systems cannot meet the same demand. NBFC, a primary non-banking instrument, stepped in to trigger the construction and supply of equipment.

In FY22, construction equipment sales fell 12 per cent, with soaring steel prices hurting demand. The earthmoving segment, which constitutes nearly 75 per cent of the total construction equipment sales in India, saw a 14 per cent decline in growth during the same period. Similarly, sales of road construction equipment fell by 10 per cent during the year. This was primarily due to escalating costs and reduced funding, especially from non-bank lenders.

 “The pillar of support for the MSMEs, a friend in NBFC, has now gone missing or turned reluctant. They are hitting the intermediaries. In fact, Srei Equipment Finance, which had a 30 per cent market share in this space partnering with more than 1 lakh customers, has been the latest victim of these overarching regulations. It has also put a question mark on the effective growth of the sector,” he said.

On the issue of the tagging certain transactions as fraudulent, he said that the classification of fraud should rest with the judiciary and not with either banks or auditors to avoid its misuse, blackmailing, chastising of businesses or promoters and destroying businesses.

Such tagging would surely be a dent on the morale of all sincere business people. Everyone seems to go after the promoters, who with their blood and sweat would have created enterprises. Genuine business failures are not acknowledged as a natural process in the economic growth of a country.

“Somehow the words default, fraud and scam are dangerously being used interchangeably these days. We are glad to learn that the RBI is reviewing this,” he said.

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