SREI NCD Holders Left In The Lurch After Lender Gets Court Protection

“Usually, we receive the interest payment by the sixth or seventh of every month. This time no payment was made. So we called the customer care number where we were informed that a court order has allowed the company to delay repayments by six months,” said Sur, adding that they had no information on the delayed payment till they asked.

Sur and many like him who hold part of the Rs 4,171 crore in outstanding NCDs issued by SREI Infrastructure Finance have been left in the lurch after the lender managed to get a stay on interest payments for seven months from the Kolkata bench of the National Company Law Tribunal at the end of December.

Along with retail NCD holders, five categories of investors, including secured debenture holders, unsecured debenture holders, secured external commercial borrowings holders, unsecured external commercial borrowing holders, perpetual debt instrument holders will also forego payments at least till July.

With that, SREI joined the likes of Dewan Housing Finance Ltd. and IL&FS in delaying payment to retail NCD holders. SREI also managed to get a stay on any asset classification or rating downgrade despite the delay in making payments.

A response to an email sent to SREI Infrastructure on Wednesday is awaited. The company, in response to a social media post, acknowledged that payments are being delayed.

Second Standstill Order Amid Liquidity Crunch

SREI Infrastructure Finance has been pursuing a scheme of arrangement with SREI Equipment Finance Ltd. since 2019. Under the proposed scheme, the group wants to transfer the lending businesses under the SREI Equipment Finance on a slump sale basis.

Simultaneously, the SREI Group is also in talks with banks to restructure its loans as liquidity pressures rose following the RBI’s decision to offer a moratorium and one-time restructuring to borrowers. These provisions weren’t extended to non-bank lenders, which, SREI argued in the Kolkata NCLT, has left the group facing asset-liability mismatches.

Both the scheme of arrangement and the restructuring proposal are pending approval. In addition, the Reserve Bank of India has initiated a special audit into the company.

In the interim, the company has used court orders to get a standstill on loan repayment.

An earlier order, dated Oct. 21, 2020, passed by the Kolkata NCLT had allowed status quo on repayments to banks.

In both orders, the Kolkata NCLT said creditors shall maintain status quo on their claims and will be barred from taking any coercive action against the company. The creditors will also not be allowed to downgrade the classification status of the group companies.

“It’s further directed that the credit rating agencies shall not consider any such non-payment to be a default under the respective debt documents and shall maintain the rating(s) of SEFL (SREI Equipment Finance Ltd) at least that of investment grade,” the December order said.

As of Dec. 15, 2020, CARE Ratings had a BB+ rating on SREI Infrastructure’s long-term bank facilities. Brickwork Ratings held a BBB rating on the company’s secured redeemable NCDs and tier-II NCDs. The perpetual bond programme had a BB rating issued by Brickwork.

In a statement issued on Jan. 12, CARE Ratings said it had previously placed SREI Infrastructure Finance under credit watch owing to the special audit announced by the RBI. “CARE would continue to closely monitor the developments in the matter and is also seeking legal assistance on the possible course of action available to it in view of the NCLT order,” the rating agency said in its statement.

Similarly, the October order had asked banks to maintain asset classification on the SREI group companies. Lenders led by UCO Bank approached the appellate tribunal to remove the moratorium placed by Kolkata NCLT, on Dec. 14. However, the National Company Law Appellate Tribunal declined relief to lenders and will hear the matter next on Jan. 20.

New Proposed Repayment Scheme

The group is now looking to realign repayments to restructured loan tenures offered to borrowers. The one time restructuring permitted by the RBI under the Aug. 6, 2020 circular, allows lenders to defer repayments for their borrowers by up to two years.

• The SREI group seeks to defer repayments to secured NCD holders and secured ECB lenders by two years from the due date.
• Unsecured NCD and ECB creditors will see their interest and principle deferred by three years from due date.
• The scheme proposes to convert 75% of SREI Equipment Finance’s dues owed to banks and financial institutions into non-convertible debentures.

In a statement to the stock exchanges on Dec. 31, 2020, SREI Infrastructure Finance said it’s proposing a new scheme to establish orderly cash flow management and collections to take care of the interests of the creditors.

“This scheme, in conjunction with the earlier scheme proposed for banks and financial institutions, shall ensure an orderly payment structure to the creditors in consonance with the cash flows of the company and thereby achieving the synergy with the cash flow management being implemented by the term loan and working capital lending banks of the company,” the statement said.