Srei Infrastructure Finance will hive off its lending business into subsidiary company Srei Equipment Finance as it focuses on growing the equipment finance business and reducing the infrastructure loan portfolio.

Srei Infrastructure, the parent company, will largely focus on fee-based business through infrastructure advisory, infrastructure structuring and syndication, and other areas such as investment banking, insurance broking and fund management, said a press statement.

As on March 31, 2019, the company’s total assets under management (AUM) were close to ₹48,000 crore. While Srei Infrastructure had AUM of ₹16,000 crore, Srei Equipment’s AUM stood at around ₹32,000 crore.

The move to consolidate its lending operations into one entity will help Srei Equipment attract strategic investors and also prepare the company for conversion into a bank, as and when the Reserve Bank of India decides to allow systematically important NBFCs to convert into banks.

The revised corporate structures will also enable the companies and their management to focus on their areas of specific expertise.

Srei Infrastructure and its wholly-owned subsidiary Srei Equipment Finance, had, in January this year, approved a composite scheme of arrangement and amalgamation, which was likely to result in the listing of its equipment finance business. The process was likely to take 8-12 months to complete, subject to regulatory, statutory and other necessary approvals.

Srei had earlier in 2017, planned to list its subsidiary through an initial public offer (IPO) and had also received nod from the Securities and Exchange Board of India (SEBI). However, the IPO plan was put on hold due to weak market sentiments.

Following the developing market conditions in the NBFC sector, the management and the Board of Directors have had several discussions and deliberations with market experts, consultants and the government. Based on these discussions, the boards of both companies decided to consolidate the lending business of Srei and Srei Equipment into one entity, the release said.

Benefits of consolidation

The consolidation will also enhance customer experience, bring in economies of scale, allow the companies to offer their services at competitive rates and provide greater flexibility in accessing capital. This move is expected to improve efficiency and reduce costs.

According to Hemant Kanoria, Chairman, Srei, the congregation of lending portfolio into Srei Equipment will enable the Group to improve efficiency, profitability, customer intensity, and also reduce costs substantially.

“Srei Infrastructure has developed wide expertise and experience in the infrastructure sector in the last three decades; so it will leverage its strength for augmenting fee-based business out of infrastructure advisory, infrastructure structuring and syndication, and other areas such as investment banking, insurance broking and fund management. The steps proposed will also enable to mitigate the risks in the present environment of slowdown in the NBFC and infrastructure sectors,” he said.

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