Srei group. Value of fraudulent transactions at Srei group entities likely to be at around ₹14,000 crore

The total value of fraudulent transactions at the Srei group entities is likely to be at around ₹14,000 crore which includes those reported so far and the ones which are likely to be reported after conducting due diligence, sources close to the development said.  A majority of these are related party transactions.

“The total value of fraudulent transactions is likely to be in the range of around ₹14,000 crore. This includes ₹5,387 crore which has been reported so far. The legal team and transaction auditor are being very cautious before declaring fraud,” source in the know of the matter said.

It is to be noted that the company’s transaction auditor, BDO India LLP had recently reported loans amounting to around ₹228 crore given by the erstwhile management of Srei Equipment Finance to Ashwath Quippo between FY19 and FY22 as fraud. This is incidentally the third tranche of fraud reported by the administrator appointed transaction auditor so far.

In July, BDO had reported fraudulent loans of close to ₹2,134 crore given by the erstwhile management to three entities - Samara Energy Ltd, Viom Infra Ventures and the Shrishti Group - between FY18 and FY21. This apart, the transaction auditor had in June, reported fraudulent transactions to the tune of ₹3,025 crore.

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An e-mail sent to Rajneesh Sharma, the administrator of the Srei Group companies – Srei Infrastructure Finance and Srei Equipment Finance - did not elicit a response.  

Lack of expertise on structured finance

However, the Kanorias have taken strong objection to the loans being tagged as “fraudulent”. According to sources close to Kanorias, it is the transaction auditor’s inability to comprehend the nature of structured transactions on financing which the company has been doing for the last three decades which has led to almost all infrastructure/structured transactions being tagged as fraudulent.

“These loans which they have been tagging as fraud have already been through several rounds of audits by these very institutions and were cleared. These are loans with high IRRs and profitable companies where payments are being cleared duly,” source close to the Kanorias said.

Bids received

The Srei group entities undergoing insolvency are believed to have received as many as three bids on Wednesday.

According to sources, New York-based investment firm Arena Investors, VFSI Holdings, an affiliate of Värde Investment Partners, and Shon Randhawa (lead partner) and Rajesh Viren Shah, are believed to have their submitted resolution plans.

The lenders had earlier extended the deadline to submit resolution plans for the two insolvent companies by 10 days to August 10, after prospective bidders requested them for an extension of the timeline.

“The bids submitted have to be checked for compliance. If there is any deficiency then it will be communicated to the bidder for rectification. Only when a bid is fully compliant can the RP (resolution professional or in this case the administrator) open the financial bid which is password protected,” the source said.

The bidders would get about 10 days for rectification and they will have time till August 19 for making changes, if any.

Meanwhile, banks are exploring the possibility of moving to an asset reconstruction company (ARC), including the government-backed bad loan aggregator National Asset Reconstruction Company Ltd, for exposure in Srei group entities.

According to Soma Sankara Prasad, MD & CEO, UCO Bank, there has been some interest from ARCs, including NARCL, for Srei. It is at a preliminary stage and was discussed at the committee of creditors meeting held earlier this week.

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