How Srei’s problems turned into a major crisis; What’s next for the Kanorias?


Retail bondholders are stressed by looming bankruptcy proceedings at two SREI group companies – SREI Infrastructure Finance and SREI Equipment Finance Ltd – as they fear heavy haircuts similar to those in the recent Dewan Housing Finance Corp case. Ltd (DHFL).
The Reserve Bank of India (RBI) replaced the board of directors of the two SREIs on October 4, citing governance issues and default. The firms have been referred to the National Company Law Tribunal (NCLT), which will now seize them in the context of insolvency proceedings.

In the case of DHFL, only bondholders whose contributions amount to Rs 2 lakh have been paid in full.

However, the promoters of the SREI group seized the Bombay High Court on October 6, challenging the RBI’s decision. As the case progresses, here’s how a problem turned into a crisis at SREI.

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The Kanoria family

Both SREI companies are owned by the Kanoria family, based in Kolkata. All SREI companies are owned by a trust called the Kanoria Foundation, which includes the HP family patriarch Kanoria and his four sons – Hemant, Sanjeev, Sunil and Sujit.

The Kanoria Foundation has an asset base of nearly $ 10 billion as reported in 2017. They have business interests in energy, technology, education, finance, media, and healthcare. Among these, three companies, SREI Infrastructure, India Power and Shristi Infrastructure Development, are listed on the stock exchange. SREI Infrastructure is the parent business entity of SREI Equipment Finance.

Hemant Kanoria is the President and CEO of SREI Infrastructure. His brother Sunil Kanoria is the vice president of the company.

Sujit Kanoria is the Managing Director of Hotel Shristi, while Sanjeev Kanoria is a UK based doctor.

The problem at SREI

Even though the SREI has claimed that banks have regularly appropriated funds from the escrow account they have controlled since November 2020, experts say problems are brewing for the SREI long before the pandemic.

“The implosion of IL & FS in 2018 resulted in a liquidity crisis in the financial sector for non-bank financial corporations (NBFCs), including SREI. This hit the growth of the business. In addition, problems in the infrastructure sector – roads and electricity – have led to stressing SREI accounts over late payments from customers, ”the head of corporate banking at a private bank told Business Standard.

The two companies have moved away from financing infrastructure and equipment over the past 4-5 years due to management’s strategy to slow down disbursements and focus on the co-loan model, he said. he declares.

SREI Equipment was looking to list its company on the stock exchange, but the Initial Public Offering (IPO) was put on hold after the IL&FS crisis.

In July 2019, the Boards of Directors of SREI Infra and SREI Equipment decided to consolidate their lending activities through a slump exchange.

“This had irritated the lenders as not all of them were considered confidential,” Business Standard said, citing a source.

With the abrupt halt of infrastructure projects due to the pandemic since March-April 2020, the SREI problem quickly turned into a crisis. Projects have been halted and borrowers have been blocked.

The RBI gave a respite from debt service during the pandemic, but the SREI faced a cash shortage as there was no respite for the NBFCs.

SREI proposed to the NCLT to pay all creditors in a structured way. However, only a few lenders accepted the offer, unlike the bankers.

Soon there was an exodus of employees when the banks took control of the company’s cash flow.

SREI appointed KPMG Assurance and Consulting Services LLP and DMKH & Co in April to audit its debt realignment.

As of September 30, SREI’s total outstanding debt stood at Rs 30,000 crore. The company owes up to Rs 20,000 crore to 15 banks, including the State Bank of India, Axis Bank and UCO Bank.

The company is in talks with private equity players to raise capital. He also received 11 expressions of interest from global investors for SREI Equipment Finance. However, the RBI sealed those plans by replacing the board on October 4.

(Edited by : Shoma bhattacharjee)

First publication: STI


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