Srei Equipment Finance receives EoI from global investors to infuse up to $250 m

Srei Equipment Finance Limited (SEFL), on Thursday, said that it has received expression of interest for up to $250 million (approx ₹1,865 crore) capital infusion from international private equity funds, including US-based Arena Investors LP and Singapore’s Makara Capital Partners.

The company’s Strategic Coordination Committee (SCC), chaired by independent director Malay Mukherjee, will coordinate, negotiate and conclude discussions with the PE investors to bring the capital into the business and advise the management.

Ernst & Young (E&Y) will be advising the committee on the proposed fund-raising exercise, the company said in a press statement.

Arena Investors LP is a multi-strategy investment firm with $2.2 billion of committed capital. The firm’s investment mandate is global, and also unconstrained in terms of asset class and industry. It provides creative solutions for those seeking capital in special situations.

Makara Capital Partners is a global financial services company under the regulatory purview of the Monetary Authority of Singapore and specialises in fund management, private equity as well as structuring and financing with a core focus on innovation, infrastructure and energy.

“The SCC is running an independent process for investor identification and has received expression of interest from Arena Investors LP and Makara Capital Partners. This process is being carried out in parallel to the debt realignment plan. The SCC will engage in discussions with the potential investors to raise fresh capital for the business, which will provide cushion against the pandemic induced stress in the Indian financial services space,” the release said.

The SCC will also be the nodal point for a comprehensive cash flow realignment plan with banks and financial institutions and for all external service providers, including investment bankers, lawyers and consultants.

The company, which had been facing cash flows issues in the wake of the Covid-19 pandemic-driven economic stress, had constituted the SCC in March-end to coordinate, negotiate and conclude discussions with potential strategic investors.

Restructuring proposal

Kolkata-headquartered Srei group has a total debt outstanding of nearly ₹27000 crore, which includes ₹18,000 crore outstanding to as many as 15 lenders, including SBI, Axis Bank and UCO Bank, among others.

During the quarter ended December 31, 2020, Srei Infrastructure Finance posted a consolidated net loss of ₹3,810 crore on account of higher and accelerated provisioning as a prudent measure.

While the company has been in discussions with the lenders for a possible restructuring, however, nothing has materialised so far.

Srei has proposed a structure where it could make repayments in a manner which would be aligned to its customers’ cash flows. The company is currently in the midst of consultations with the creditors for an orderly realignment to make the payments synchronised with its collections.

Communication to investors

In a stock market notification on Thursday, the company said that it has appointed Ernst & Young as its primary advisor to work alongside the creditors to come up with a debt realignment plan through a consultative process.

The company is expecting “concrete engagement/progress” during the coming months in the following areas, including debt realignment plans through a consultative process across different creditor classes, under the auspices of the NCLT and equity raising plans to shore up the capital base in Srei Equipment Finance.

“Depending on the recommendation of the transaction advisors and comfort of the creditors, we have the flexibility to optimally choose the corporate structure keeping in mind extant regulatory, tax and legal guidelines,” the company said in a bid to allay investor apprehensions.

This apart, the company would look to stabilise the ongoing operations and employee morale through greater operational flexibility under the guidance of the board and in line with the objectives of the banks, without any coercive steps impacting salaried professionals.

“However, we are now clear that we need to prune the balance sheet, operate primarily in the bank compliant asset market and change the duration of our liabilities to meet the extant and emerging regulations. We have already initiated necessary steps in this regard, including aggressive sell down of assets, reduced disbursements and attempt to re-profile our liabilities. While because of the pandemic and the heightened risk aversion towards NBFCs some of these transformations have not happened at the pace at which we wanted, we are totally committed to come out stronger on the other side in full compliance of the present regulatory guidelines,” it said.

The present asset and liability profile would need time to be corrected to the current dispensation and the company would look forward to the support and guidance from the RBI and its banking partners to ensure effective transition of its business model.

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